51Talk Online Education Group [COE] Filings

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 20-F

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(Mark One)

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Date of event requiring this shell company report

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For the transition period from                    to      

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Commission file number: 001-37790

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Securities registered or to be registered pursuant to Section 12(b) of the Act:

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Securities registered or to be registered pursuant to Section 12(g) of the Act:

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

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Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. As of December 31, 2023, there were 343,300,197 ordinary shares outstanding, par value $0.0001 per share, being the sum of 239,693,217 Class A ordinary shares (excluding 948,675 Class A ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercising or vesting of awards granted under the issuer’s share incentive plan) and 103,606,980 Class B ordinary shares.

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ No

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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐ Yes ☒ No

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Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

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† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

☐ Yes ☒ No

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐

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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

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(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

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Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

☐ Yes ☐No

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INTRODUCTION

In this annual report, except where the context otherwise requires and for purposes of this annual report only:

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FORWARD-LOOKING INFORMATION

This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. This annual report contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects.” These forward-looking statements are made under the “safe-harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Other sections of this annual report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from, or worse than, what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

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PART I.

ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

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ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

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ITEM 3.      KEY INFORMATION

Our Holding Company Structure

51Talk Online Education Group is not an operating company but a Cayman Islands holding company. We conduct our business operations through our offshore subsidiaries, including our Hong Kong subsidiaries, as well as our subsidiaries in mainland China. We conduct part of our operations, which solely pertains to research and development, administration and sales and marketing, through our mainland China subsidiaries. Investors in our ADSs are purchasing equity interest in a holding company incorporated in the Cayman Islands instead of equity interest in our operating subsidiaries. This structure involves unique risks to investors who hold our ADSs. For example, as a holding company, our mainland China subsidiaries are subject to regulations on loans to, and direct investment in, mainland China entities by offshore holding companies. In addition, Chinese regulatory authorities could disallow this structure, which would likely result in a material change in our operations and/or a material change in the value of our securities, including that it could cause the value of such securities to significantly decline or become worthless. For a detailed description of risks related to having operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulation on loans to, and direct investment in, mainland China entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our equity offerings to make loans to our mainland China subsidiaries or make additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

We face various legal and operational risks and uncertainties associated with having part of our operations in China and the complex and evolving PRC laws and regulations. For example, we face risks associated with regulations on loans to, and direct investment in, mainland China entities by offshore holding companies. These risks could result in a material adverse change in our operations and the value of our ADSs or cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulation on loans to, and direct investment in, mainland China entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our equity offerings to make loans to our mainland China subsidiaries or make additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” All the operational risks associated with having operations in mainland China also apply to operations in Hong Kong. With respect to the legal risks associated with having operations in mainland China, the laws, regulations and the discretion of mainland China governmental authorities discussed in this annual report are expected to apply to mainland China entities and operations, rather than entities or operations in Hong Kong which operate under a different set of laws from mainland China.

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The PRC government has recently implemented industry-wide regulations, including data security and anti-monopoly related regulations. After the divestiture of the China Mainland Business, we have ceased selling our service offerings in mainland China and only conduct part of our operations in mainland China, thereby regulations in this nature or regulatory actions related to the PRC Enterprise Income Tax Law have not had a material impact to our ability to conduct our business, accept foreign investments, or list on a U.S. or other foreign exchange. For example, the PRC government has recently promulgated a series of cybersecurity and data privacy laws and regulations in China, including the PRC Cybersecurity Law and the Cybersecurity Review Measures. In light of our current business focus on countries and regions outside mainland China after the divestiture of the China Mainland Business and the service providers hosting our servers and routers being located in Singapore, as of the date of this annual report, we have not experienced any material impact of the recently promulgated cybersecurity and data privacy laws and regulations on our ability to conduct our business, accept foreign investments, or list on a U.S. or other foreign exchange. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business generates and processes a large amount of data, and we are required to comply with applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.” Furthermore, regulators in mainland China have recently focused on enforcement of anti-monopoly and unfair competition rules, which have not materially affected our operations because we have shifted our business focus to countries and regions outside mainland China. However, new regulatory actions relating to data security or anti-monopoly concerns in mainland China may be taken, and there is no assurance that such new regulatory actions will not materially impact our ability to conduct our business, accept foreign investments, or list on a U.S. or other foreign exchange.

In addition, as we conduct operations in Hong Kong, we face legal and operational risks under a variety of laws and regulations in Hong Kong regarding data privacy and cybersecurity, copyright, anti-money laundering, anti-monopoly, education, employment and labor, consumer protection and anti-discrimination. As of the date of this annual report, we believe we have complied with the laws and regulations in Hong Kong in all material respects. As of the date of this annual report, regulatory actions related to data security or anti-monopoly concerns in Hong Kong have not had a material impact on our ability to conduct business, accept foreign investment in the future or continue to list on a United States or other foreign stock exchange. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business generates and processes a large amount of data, and we are required to comply with applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—We provide our course offerings to our students in Hong Kong and are subject to laws, rules and regulations governing the accessibility and content of our course offerings, such as the Education Ordinance and anti-discrimination laws. Non-compliance with the laws and regulations regarding our operations in Hong Kong may materially and adversely affect our reputation, business operations and prospects.”

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The following diagram illustrates our current corporate structure, which includes our significant subsidiaries and consolidated affiliated entities as of the date of this annual report:

Notes:

⁎ The holding company in which the investors hold their interests

† Our operating subsidiaries

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(1) Jack Jiajia Huang and Ting Shu through their holding vehicles, which are wholly owned by TB Family Trust established for the benefits of Mr. Huang and Ms. Shu and their family members, beneficially owned 24.7% of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024, which represents 39.0% of the aggregate voting power of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024. DCM Funds, including DCM Hybrid RMB Fund, L.P., DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P., beneficially owned 19.8% of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024, which represents 46.0% of the aggregate voting power of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024. Sequoia Capital China Investment Funds, including SCC Venture V Holdco I, Ltd. and SCC Growth I Holdco A, Ltd., beneficially owned 11.6% of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024, which represents 3.1% of the aggregate voting power of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024. Golien Ltd beneficially owned 5.5% of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024, which represents 1.5% of the aggregate voting power of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024. Other shareholders including certain principal shareholders, beneficially own 38.4% of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024, which represents 10.4% of the aggregate voting power of our total issued and outstanding Class A and Class B ordinary shares on an as-converted basis as of February 29, 2024.

(2) Each of Noel Lee, Huiru Yuan, Jennifer Que, Kenneth John Manlapaz, Samuel Celestino, Xing Liu and Wei Li holds 0.000001% of the equity interest in Philippines Co II. Each of Noel Lee, Huiru Yuan, Jennifer Que, Kenneth John Manlapaz, and Samuel Celestino is a director of Philippines Co II. Xing Liu is a partner of one of the Sequoia entities that are our shareholders. We entered into contractual arrangements with some of these individual shareholders which provide us an exclusive option to purchase all of these individual shareholders’ equity interests in Philippines Co II and the power to exercise their shareholder rights.

(3) Each of Cindy Chun Tang, Frank Lin, Rommel Quozon, Janice Elizabeth Santos and Anna Marie Rivera holds 0.0002% of the equity interest in Philippines Co III. Each of Cindy Chun Tang, Frank Lin, Rommel Quozon, Janice Elizabeth Santos and Anna Marie Rivera is a director of Philippines Co III. We entered into contractual arrangements with one of these individual shareholders which provide us with an exclusive option to purchase all of the individual shareholder’s equity interests in Philippines Co III and the power to exercise their respective shareholder rights.

(4) In July 2018, HelloWorld Online Education Group, or HelloWorld Online Cayman, was incorporated as a wholly owned subsidiary of 51Talk Online Education Group.

(5) In December 2021, HelloWorld Online Education PTE. Ltd., or HelloWorld Online Singapore, was incorporated as a wholly owned subsidiary of HelloWorld Online Cayman.

(6) In August 2018, HelloWorld Online Education Group (HK) limited, or HelloWorld Online HK, was incorporated as a wholly owned subsidiary of HelloWorld Online.

(7) In April 2022, 51TALK TRAINING SDN. BHD, or 51TALK TRAINING MAS, was incorporated as a wholly owned subsidiary of HelloWorld Online Singapore.

(8) In November 2022, Helloworld Education Online (Thailand) Co., Ltd., or Helloworld Thailand, was incorporated as a subsidiary of our company to operate our business in Thailand. Helloworld Online Singapore, Ms. Suphaphon Thapmichai and Mr. Chularak Aramruansakul hold 49%, 26% and 25% of the equity interest in Helloworld Thailand, respectively. Helloworld Online Singapore holds ordinary shares, and each ordinary share is entitled to one vote. Ms. Suphaphon Thapmichai and Mr. Chularak Aramruansakul hold preference shares, and ten preference shares is entitled to one vote. As a result, we, through Helloworld Online Singapore, hold 90.6% of the voting power of Helloworld Thailand.

(9) In September 2018, Beijing HelloWorld Online Technology Co., Ltd., or HelloWorld Online, was incorporated as a wholly owned subsidiary of HelloWorld Online HK.

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Historically, as we were the primary beneficiary of the former mainland China consolidated VIEs for accounting purposes, we conducted part of our business in mainland China through the former mainland China consolidated VIEs. In 2022, all of the former mainland China consolidated VIEs were divested along with the China Mainland Business or subsequently dissolved. As of the date of this annual report, we do not have any variable interest entity in mainland China nor maintain any contractual arrangement between our mainland China subsidiaries and our offshore subsidiaries or 51Talk Online Education Group that could affect the manner in which we operate or impact our ability to control our subsidiaries.

Permissions for Our Operations and Securities Issuances to Offshore Investors

51Talk Online Education Group is not an operating company, but rather a Cayman Islands holding company. We conduct part of our operations through our subsidiaries in mainland China. Our operations in mainland China are governed by laws and regulations of mainland China. As of the date of this annual report, it is the opinion of our PRC legal counsel, Shihui Partners, that our mainland China subsidiaries (i) have obtained the requisite approvals and permissions from the PRC government authorities that are necessary for our business operations, namely, (a) the business license of HelloWorld Online issued by the Administration for Market Regulation of Shijingshan District, Beijing Municipality, (b) the housing fund deposit registration of HelloWorld Online with the Beijing Housing Fund Management Center, and (c) the business license of Nanjing HelloWorld Online issued by the Administration for Market Regulation of Lishui District, Nanjing Municipality, and (ii) have not been denied of such approvals and permissions. Furthermore, with respect to our operations in Hong Kong, our Hong Kong subsidiaries have obtained the requisite approvals and permissions from competent Hong Kong regulatory authorities that are necessary for our business operations, namely, the business registration license of HelloWorld Online HK and the business registration license of COE HK Co II, both issued by the Commissioner of Inland Revenue in Hong Kong.

In connection with our issuance of securities to offshore investors, as of the date of this annual report, based on the current status of our company and mainland China subsidiaries, it is the opinion of our PRC legal counsel, Shihui Partners, that we and our PRC subsidiaries, are not required to (i) obtain permissions from the China Securities Regulatory Commission, or the CSRC, or (ii) go through cybersecurity review by the Cyberspace Administration of China, or the CAC, or obtain other permission or approval from the PRC government authorities. However, there can be no assurance that the PRC government agencies, including the CSRC, would reach the same conclusion with our PRC legal counsel.

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Under applicable laws of mainland China, we and our mainland China subsidiaries are subject to an annual assessment to determine whether we and our mainland China subsidiaries are required to complete certain filing procedures with the CSRC, in connection with future offering and listing in an overseas market, including our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities. Under the current PRC laws, rules and regulations, we are subject to the following test in determining whether we and our mainland China subsidiaries are subject to the filing procedures with the CSRC: (i) our mainland China subsidiaries account for more than 50% of our operating revenue, profits, total assets or net asset in our audited consolidated financial statements for the most recent completed fiscal year, and (ii) the majority of our senior management are Chinese citizens or domiciled in mainland China, or the key aspects of our business activities are conducted in mainland China, or our main places of operations are located in mainland China. Moreover, according to the applicable rules and regulations, the determination of the overseas offerings and listings of domestic companies will be conducted on a “substance over form” basis. Following the divestiture of the China Mainland Business, we have ceased providing online tutoring services in China and concentrate on expanding international business by providing our service offerings through our offshore subsidiaries in overseas markets. As of the date of this annual report, we believe that (i) our future offshore offering or listing in an overseas market are not subject to the filing requirements of the CSRC, including our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities, and (ii) we are also not subject to the requirements of filing a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary or mandatory delisting. However, there can be no assurance that the CSRC and other PRC government agencies would reach the same conclusion. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings and capital raising activities under the laws of mainland China if the CSRC or other PRC government authorities determine that their regulatory regimes for offshore offerings and capital raising activities apply to us. If required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.”

The PRC government has promulgated a series of cybersecurity and data privacy laws and regulations in China, including the Cybersecurity Review Measures. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any initial public offering at a foreign stock exchange. All of our servers and routers, including backup servers, are currently hosted by third-party service providers in Singapore. As of the date of this annual report, we and our mainland China subsidiaries have not been asked to go through cybersecurity review by any PRC government authority. Based on the foregoing, as advised by our PRC legal counsel, Shihui Partners, as of the date of this annual report, our mainland China subsidiaries are not required by the CAC, to go through cybersecurity review in connection with our operations or our company’s issuance of securities to foreign investors.

In addition, in the event that we or our subsidiaries do not receive or maintain such permissions or approvals that are necessary to conduct our operations in mainland China and Hong Kong, inadvertently conclude that such permissions or approvals are not required, or are required to obtain such permissions or approvals in the future as a result of revisions or amendments in applicable laws, regulations, or interpretations, we may be unable to obtain such necessary approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

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If we fail to complete such filing procedures for any future offshore offering or listing, including our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities, we may face sanctions by the CSRC or other mainland China regulatory authorities, which may include fines and penalties on our operations in mainland China, limitations on our operating privileges in mainland China, restrictions on or delays to our future financing transactions offshore, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. In addition, we are required to file a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary or mandatory delisting. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings and capital raising activities under the laws of mainland China if the CSRC or other PRC government authorities determine that their regulatory regimes for offshore offerings and capital raising activities apply to us. If required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.”

Historically, 51Talk Online Education Group provided English education services in mainland China primarily through its mainland China subsidiaries and the former mainland China consolidated VIEs. As a result of the contractual arrangements, 51Talk Online Education Group was considered the primary beneficiary of the former mainland China consolidated VIEs for accounting purposes and consolidated the former mainland China consolidated VIEs as required by Accounting Standards Codification topic 810, Consolidation. Accordingly, 51Talk Online Education Group treated the former mainland China consolidated VIEs as its consolidated entities under U.S. GAAP, and 51Talk Online Education Group consolidated the financial results of the former mainland China consolidated VIEs in its consolidated financial statements in accordance with U.S. GAAP. In 2022, all of the former mainland China consolidated VIEs were divested along with the China Mainland Business or subsequently dissolved. As of December 31, 2023, 51Talk Online Education Group did not have any variable interest entity in mainland China.

The Holding Foreign Companies Accountable Act

Pursuant to the Holding Foreign Companies Accountable Act, which was enacted on December 18, 2020 and further amended by the Consolidated Appropriations Act, 2023 signed into law on December 29, 2022, or the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our former auditor. In June 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021, which included an audit report issued by our former auditor PricewaterhouseCoopers Zhong Tian LLP. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. In addition, our current auditor is an accounting firm based in Manhattan, New York, that is registered with the PCAOB and is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. For this reason, we were not identified as a Commission-Identified Issuer under the HFCAA after we filed our annual report on Form 20-F for the fiscal year ended December 31, 2022 and do not expect to be so identified after we file this annual report on Form 20-F for the fiscal year ended December 31, 2023. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely our current auditor, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The PCAOB had historically been unable to inspect our former auditor in relation to its audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our former auditor in the past has deprived our investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely our current auditor. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

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Cash Flows through Our Organization

51Talk Online Education Group is a holding company with no operations of its own. 51Talk Online Education Group may, through capital contributions or loans, provide funding to its wholly owned subsidiaries in Hong Kong or subject to the satisfaction of applicable government registration and approval requirements, to its wholly owned mainland China subsidiaries. In particular, 51Talk Online Education Group may, through capital contributions, to provide funding to its wholly owned subsidiaries in Hong Kong, which in turn may provide funding to mainland China subsidiaries wholly owned by such Hong Kong subsidiaries through capital contributions, subject to the satisfaction of applicable government registration and approval requirements in mainland China. Additionally, 51Talk Online Education Group or its offshore subsidiaries may directly provide funding to its wholly owned subsidiaries in mainland China through loans, subject to the satisfaction of applicable government registration and approval requirements in mainland China. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulation on loans to, and direct investment in, mainland China entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our equity offerings to make loans to our mainland China subsidiaries or make additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” In addition, offshore subsidiaries of 51Talk Online Education Group pay service fees to certain mainland China subsidiary of 51Talk Online Education Group pursuant to operating management service agreements, marketing service agreements and research and development service agreements. Mainland China subsidiaries of 51Talk Online Education Group may distribute dividends or make other distributions on equity to 51Talk Online Education Group, subject to satisfaction of applicable government filing and approval requirements. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—Our mainland China subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.” Prior to the termination of the variable interest entity structure, 51Talk Online Education Group and its offshore subsidiaries may provide funding to the former mainland China consolidated VIEs through loans, and the former mainland China consolidated VIEs may transfer cash to our mainland China subsidiaries by paying service fees under the contractual arrangements. To effectively manage cash flow within our organization, we have put in place relevant cash management policies, which are established based on contractual arrangements between us and our subsidiaries, to dictate how funds are transferred within our organization. Every fund transfer between our Cayman Islands holding company and a subsidiary is subject to internal approval and is under the centralized management of our treasury department. Each fund transfer request is made pursuant to contractual agreements and subject to the review and approval by specialists in the treasury department in verifying fund amount, transaction parties, bank account, etc. The following is a summary of cash transfers that have occurred through our organization (in thousands):

Notes:

(1) It mainly represented service fees paid and received among the former mainland China consolidated VIEs and our mainland China subsidiaries for information and technology services;

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(2) It represented temporary cash support transferred among the former mainland China consolidated VIEs and our mainland China subsidiaries for intra-group financing;

(3) It represented operating cash transferred from onshore subsidiaries to offshore subsidiaries for salary payment to Philippine teachers;

(4) It represented temporary cash support transferred among the parent company and offshore subsidiaries, accounted for as advances and payables between the entities; and

(5) The VIE structure in mainland China was terminated in 2022.

No assets other than cash were transferred between the Cayman Islands holding company, a subsidiary, a former mainland China consolidated VIE or its subsidiaries since January 1, 2021 until the termination of the VIE structure in mainland China. For details of our financial position, cash flows and results of operations, see the consolidated financial statements included in this annual report on Form 20-F.

Our ability to distribute earnings to U.S. investors is limited. We are a Cayman Islands holding company, and we may rely on dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. When any of our subsidiaries incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Our subsidiaries’ ability to distribute dividends is based upon their distributable earnings. As of the date of this annual report, we only derive revenues from business operations conducted through our offshore subsidiaries.

In addition, under laws and regulations of mainland China, our mainland China subsidiaries are subject to restrictions on foreign exchange and cross-border cash transfers, including to our holding company 51Talk Online Education Group and to U.S. investors. For example, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—Governmental regulation of currency conversion in mainland China may affect the value of your investment” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulations relating to foreign exchange registration of international investment by mainland China residents may subject our mainland China resident beneficial owners or our mainland China subsidiaries to liability or penalties, limit our ability to inject capital into these subsidiaries, limit mainland China subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.” To the extent cash or other assets in the business is in mainland China or a mainland China entity, the funds or other assets may not be available to fund operations or for other use outside of mainland China due to the imposition of restrictions and limitations by the PRC government on the ability of 51Talk Online Education Group or its subsidiaries to transfer cash or other assets. As of the date of this annual report, there is no equivalent or similar restriction or limitation in Hong Kong on cash or other assets transfers in, or out of, our Hong Kong entities, except for the transfer of funds involving money laundering and criminal activities. However, if restrictions or limitations were to become applicable to cash or other asset transfers in and out of Hong Kong entities in the future, the funds or other assets in our Hong Kong entities may not be available to fund operations or for other use outside of Hong Kong. There is no assurance that the ability of us, our subsidiaries and the former mainland China consolidated VIEs to transfer cash will not subject to further limitations or restrictions imposed by the PRC government. Neither our subsidiaries nor the former mainland China consolidated VIEs made cash dividends or other distributions to 51Talk Online Education Group, the holding company, or its offshore subsidiaries, in the years ended December 31, 2021, 2022 and 2023. Going forward, our subsidiaries intend to retain most, if not all, of their available funds and any future earnings.

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51Talk Online Education Group has not declared or paid any cash dividends, nor does it have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. Accordingly, for the years ended December 31, 2021, 2022 and 2023, no dividends or distributions were paid or made to U.S. investors. For mainland China and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”

Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains. Upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed. For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in mainland China and Hong Kong, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future.

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Not Applicable.

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Not Applicable.

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Summary of Risk Factors

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Below is a summary of material risks we face, organized under relevant headings. All the operational risks associated with having operations in mainland China also apply to operations in Hong Kong. With respect to the legal risks associated with having operations in mainland China, the laws, regulations and the discretion of mainland China governmental authorities discussed in this annual report are expected to apply to mainland China entities and operations, rather than entities or operations in Hong Kong which operate under a different set of laws from mainland China.

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Risks Related to Our Business and Industry

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Risks Related to Our Global Operations

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Risks Related to Our ADSs

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Risks Related to Our Business and Industry

Our limited operating history in the international market makes it difficult to evaluate our future prospects.

In response to the Alleviating Burden Opinions promulgated on July 24, 2021, and its implementation measures, we ceased providing K-12 online tutoring services in mainland China and divested the China Mainland Business at the end of June 2022.

In the second half of 2021, we commenced our international business that provides one-on-one English lessons taught by foreign tutors to students in countries and regions outside of mainland China. Since then, we have managed to grow rapidly to acquire a substantial number of students outside of mainland China. However, given our short history of international operations, our performance to date may not be indicative of our future growth or financial results. We cannot assure you that we will be able to grow at a similar rate as we did since we commenced our international operations or as we did in the past when we were providing English lessons to students in mainland China, or avoid any decline in the future. Our growth may slow down or our revenues may decline for a number of possible reasons, some of which are beyond our control, including decreasing student spending, increasing competition, declining growth or contraction of our overall market or industry, the emergence of alternative business models, changes in rules, regulations, government policies or general economic conditions, and natural disasters or virus outbreaks. We will continue to expand our international business and may explore new service offerings to bring better experience to students and increase our student base and expand our geographic reach. Implementation of our expansion plan and execution of our new business initiatives are subject to uncertainty, and we may not be able to grow at the rate we expect for the reasons stated above. In addition, there may be particular complexities, regulatory or otherwise, associated with our expansion into new service categories or new markets. If our growth rate declines, investors’ perceptions of our business and business prospects may be adversely affected and the market price of the ADSs could decline. You should consider our prospects in light of the risks and uncertainties that companies with a limited operating history may encounter.

If we are not able to continue to attract students to purchase our course packages or to increase the spending of our students on our platform, our business and prospects will be materially and adversely affected.

Since the second half of 2021, we have developed and transitioned into new business models and service offerings providing one-on-one English lessons taught by foreign tutors to students in countries and regions outside mainland China. Our ability to attract students to purchase our course packages and to increase their spending on our education platform remains critical to the future success and growth of our business. This in turn will depend on several factors, including our ability to effectively market our platform to a broader base of prospective students, continue to develop, adapt or enhance quality educational content and services to meet the evolving demands of our students and expand our geographic reach. We must also manage our growth while maintaining consistent and high teaching quality, and respond effectively to competitive pressures. If we are unable to continue to attract students to purchase our course packages or to increase the spending of our students on our platform, our net revenues and gross billings may decline, which may have a material adverse effect on our business, financial condition and results of operations.

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Our business depends on the market recognition of our brand, and if we are unable to maintain and enhance brand recognition, our business, financial conditions and results of operations may be materially and adversely affected.

We believe that the market recognition of our brand has significantly contributed to the success of our business and that as we have transitioned into new business models and service offerings outside of mainland China in response to the regulatory changes in mainland China since the second half of 2021, maintaining and enhancing our brand recognition is critical to our future success. For example, promoting our brand recognition in international markets will be important for us to attract international students and grow our international business. Our ability to maintain and enhance brand recognition and reputation depends primarily on the perceived effectiveness and quality of our curriculum and tutors, as well as the success of our branding efforts. If we are unable to maintain and further enhance our brand recognition and reputation and promote awareness of our platform, we may not be able to charge a desired level of student fees or engage qualified tutors, and our results of operations may be materially and adversely affected. Furthermore, any negative publicity relating to our company, our courses, tutors and platform or our brand ambassador, regardless of its veracity could harm our brand image and in turn materially and adversely affect our business and results of operations.

If we are unable to conduct sales and marketing activities cost-effectively, our results of operations and financial condition may be materially and adversely affected.

We have incurred significant sales and marketing expenses. Our sales expenses include telemarketing sales and free trial lesson related expenses, and our marketing expenses include online and mobile marketing and branding expenses. In December 2015, we began outsourcing part of our marketing and sales functions to independent third-party suppliers who provide management and business outsourcing services. We had 682 sales and marketing staff for international business, including 222 full-time employees and 460 outsourced personnel as of December 31, 2023. We incurred US$3.4 million, US$13.3 million and US$23.6 million in sales and marketing expenses for international business in 2021, 2022, and 2023, respectively. We have ceased branding and marketing services in mainland China since the release of the Alleviating Burden Opinion, and we are conducting branding and marketing activities in our international markets.

Our sales activities may not be well received by students and may not result in the levels of sales that we anticipate and our trial lessons may not be attractive to our prospective students. Furthermore, we may not be able to achieve the operational efficiency necessary to increase the revenues per sales and marketing staff. We also may not be able to retain or recruit experienced sales staff, or to efficiently train junior sales staff. We may also incur additional costs in our sales and marketing efforts to promote our new service offerings or target new international markets and cannot guarantee that such efforts will succeed. Further, marketing and branding approaches and tools in the online education market abroad are evolving, especially for mobile platforms. This further requires us to enhance our marketing and branding approaches and experiment with new methods to keep pace with industry developments and student preferences. Failure to refine our existing marketing and branding approaches or to introduce new marketing and branding approaches in a cost-effective manner may reduce our market share, cause our revenues to decline and negatively impact our profitability.

We have incurred, and in the future may continue to incur, net losses.

We incurred net loss from continuing operations of US$4.2 million, US$12.8 million and US$15.0 million in 2021, 2022 and 2023, respectively. We had accumulated deficit of US$346.4 million as of December 31, 2023. As of December 31, 2023, we had a total shareholders’ equity of negative US$8.3 million and our current liabilities exceeded the current assets by US$9.3 million.

We incurred net loss from continuing operations for 2021, 2022 and 2023 we cannot assure you that we will be able to generate net profits or positive cash flow from operating activities in the future, especially as we divested the China Mainland Business and transitioned into new international markets, the financial prospects of which are largely uncertain. Our ability to maintain profitability will depend in large part on our ability to maintain continuous operation in compliance with regulatory requirements, maintain or increase our operating margin, either by growing our revenues at a rate faster than our operating expenses increase, or by reducing our operating expenses. We also intend to continue to invest in our branding and marketing activities to attract students to our new services and enhance student experience. We may continue to incur net losses from operating activities and net current liabilities, which may materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.

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We face significant competition, and if we fail to compete effectively, we may lose our market share or fail to gain additional market share, which would adversely impact our business and financial conditions and operating results.

The global English education market is fragmented, rapidly evolving and highly competitive. We face competition in various areas of English education in which we offer or plan to offer services, from existing online and offline education companies in the global markets. In the future, we may also face competition from new entrants into the English education market.

Some of our competitors may be able to devote more resources than we can to the development and promotion of their education programs and respond more quickly than we can to changes in student demands, market trends or new technologies. In addition, some of our competitors may be able to respond more quickly to changes in student preferences or engage in price-cutting strategies. We cannot assure you that we will be able to compete successfully against current or future competitors. If we are unable to maintain our competitive position or otherwise respond to competitive pressure effectively, we may lose market share or be forced to reduce our fees for course packages, either of which would adversely impact our results of operations and financial condition.

If we are not able to continue to engage, train or retain qualified tutors, we may not be able to maintain consistent teaching quality on our platform, and our business, financial conditions and operating results may be materially and adversely affected.

Our tutors are critical to the learning experience of our students and our reputation. We seek to engage highly qualified tutors with strong English and teaching skills. We must provide competitive pay and other benefits, such as flexibility in lesson scheduling to attract and retain them. We must also provide ongoing training to our tutors to ensure that they stay abreast of changes in course materials, student demands and other changes and trends necessary to teach effectively. Furthermore, as we develop new service offerings and continue to develop new course contents and lesson formats, we may need to engage additional tutors with appropriate skill sets or backgrounds to deliver instructions effectively. We cannot guarantee that we will be able to effectively and timely engage and train such tutors, or at all. Further, given other potential more attractive opportunities for our quality tutors, over time some of them may choose to leave our platform. We may not always be able to engage, train and retain enough qualified tutors to keep pace with our growth or new business strategies while maintaining consistent education quality. We may also face significant competition in engaging qualified tutors from our competitors or from other opportunities that are perceived as more desirable. A shortage of qualified tutors, a decrease in the quality of our tutors’ performance, whether actual or perceived, or a significant increase in the cost to engage or retain qualified tutors would have a material adverse effect on our business and financial conditions and results of operations.

If we fail to successfully execute our growth strategies, our business and prospects may be materially and adversely affected.

We are in the process of developing new business models and service offerings outside of mainland China. See “Item 4. Information on the Company” for details. Our growth strategies also include further enhancing our brand image to grow or evolve our student base and increase student enrollments, increasing our market penetration, expanding our course offerings, enhancing our teaching methods, improving the learning experience of our students, and advancing our technology. We may not succeed in executing these growth strategies due to a number of factors, including the following:

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If we fail to successfully execute our growth strategies, we may not be able to maintain our growth rate and our business and prospects may be materially and adversely affected as a result.

If we fail to develop and introduce new courses that meet our existing and prospective students’ expectations, or adopt new technologies important to our business, our competitive position and ability to generate revenues may be materially and adversely affected.

In response to the regulatory changes in mainland China since the second half of 2021, we have switched from a business model that focuses on Chinese K-12 students to new business models and service offerings in international market. See “Item 4. Information on the Company” for details. We intend to continue developing new courses as we grow our new businesses. The timing of the introduction of new courses is subject to risks and uncertainties. Unexpected technical, operational, logistical or other problems could delay or prevent the introduction of one or more new courses. Moreover, we cannot provide assurance that any of these courses or programs will match the quality or popularity of those developed by our competitors, achieve widespread market acceptance or contribute the desired level of income.

The effectiveness of our program depends on the success of our personalized learning approach to English education, which in turn is determined by the efficiency of our data analytics know-how. We might not be able to continue to efficiently monitor and analyze data important for us to provide a personalized learning experience for our students, or to continue to drive our teaching training, curriculum development and other operational aspects of our platform.

Technology standards in internet and value-added telecommunications services and products in general, and in online education in particular, may change over time. If we fail to anticipate and adapt to technological changes, our market share and our business development could suffer, which in turn could have a material and adverse effect on our financial condition and results of operations. If we are unsuccessful in addressing any of the risks related to new courses, our reputation and business may be materially and adversely affected.

Our business generates and processes a large amount of data, and we are required to comply with applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.

Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:

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As all of our servers and routers, including backup servers, are currently hosted by third-party service providers in Singapore, we are, with regards to privacy legislation, subject principally to the Singapore Personal Data Protection Act 2012 which provides a baseline standard for the protection of personal data in Singapore. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Singapore Regulations.” Similarly, there are personal data protection laws and regulations imposed on our group companies in each of the jurisdictions that we operate in. For example, we have obligations under Hong Kong’s Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong), or the PDPO, and Malaysia’s Personal Data Protection Act. In particular, the PDPO applies to data users that control the collection, holding, processing or use of personal data in Hong Kong. We are subject to the general requirements under the PDPO, including the requirements to obtain the prescribed consent of data subjects and to take all practicable steps to protect the personal data held by data users against unauthorized or accidental access, loss or use. Non-compliance with the PDPO may lead to a variety of civil and criminal sanctions including fines and imprisonment. In addition, data subjects have a right to bring proceedings in court to seek compensation for damage caused by a contravention of the PDPO. We have taken various measures to guard against unauthorized access or use of data collected from users or accidental data leak. As of the date of this annual report, we have not received any warning, penalty, administrative punishment from relevant authorities in Hong Kong as a result of violations of applicable laws and governmental policies including the PDPO, nor have received requests from governmental authorities to improve our online platform to enhance protection over personal data.

In general, we expect that data security and data protection compliance will receive greater attention and focus from regulators in the countries and regions that we operate in, as well as attract continued or greater public scrutiny and attention going forward, as regulatory authorities around the world have adopted or are considering a number of legislative and regulatory proposals concerning data protection. These legislative and regulatory proposals, if adopted, and the uncertain interpretations and application thereof could, in addition to the possibility of fines, result in an order requiring that we change our data practices and policies, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection and thereby have an adverse effect on our business and results of operations.

If we are unable to manage these risks associated with data privacy and cybersecurity, we could become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.

Furthermore, despite that we divested the China Mainland Business in June 2022 in response to regulatory changes in China, there is no assurance that students based in mainland China will not manage to access our service offerings under our international business through the internet, which may subject us to risks of non-compliance with laws, rules and regulations of data security and protection in mainland China and thereby have a negative impact on our business operations, financial condition and operating results. The PRC government has promulgated a series of cybersecurity and data privacy laws and regulations in China, including the PRC Cybersecurity Law and the Cybersecurity Review Measures. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any initial public offering at a foreign stock exchange. All of our servers and routers, including backup servers, are currently hosted by third-party service providers in Singapore. As of the date of this annual report, we and our mainland China subsidiaries have not been asked to go through cybersecurity review by any PRC government authority. Based on the foregoing, as advised by our PRC legal counsel, Shihui Partners, our mainland China subsidiaries are not required by the CAC to go through cybersecurity review in connection with our operations or our company’s issuance of securities to foreign investors.

Our business broadcasts online content and we are required to comply with various broadcasting and online content regulations, including licensing requirements, under applicable laws. Non-compliance with such regulations and applicable licensing requirements may result in, among others, the revocation of our licenses and the takedown and/or blocking of our content in these jurisdictions.

Our business involves the broadcasting of online content in and from various jurisdictions, including Singapore, and would therefore be subject to applicable laws and regulations (including licensing requirements). For applicable laws and regulations in Singapore, see “Item 4. Information on the Company—B. Business Overview—Government Regulations—Singapore Regulations.”

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If we are unable to comply with the broadcasting and online content laws and regulations, we could become subject to penalties, including fines, revocation of our licenses, blocking and/or takedown of our online content.

Unexpected network interruptions, security breaches or computer virus attacks and system failures could have a material adverse effect on our business, financial condition and results of operations.

Our business depends on the performance and reliability of the internet infrastructure in the countries and regions where we operate our business. In many parts of the countries and regions where we operate our business, in particular, certain Asian countries, the internet infrastructure is relatively underdeveloped, and internet connections are generally slower and less stable than in more developed countries. We cannot assure you that the internet infrastructure in the countries and regions where we operate our business will remain sufficiently reliable for our needs or that such countries or regions will develop and make available more reliable internet access to our students and independently contracted tutors. Any failure to maintain the performance, reliability, security or availability of our network infrastructure may cause significant damage to our ability to attract and retain students and tutors. Major risks involving our network infrastructure include:

Any network interruption or inadequacy that causes interruptions in the availability of our online and mobile platforms or deterioration in the quality of access to our online and mobile platforms could reduce student satisfaction and result in a reduction in the activity level of our students and the number of students purchasing our course packages. If sustained or repeated, these performance issues could reduce the attractiveness of our platform. Furthermore, increases in the volume of traffic on our online and mobile platforms could strain the capacity of our existing computer systems and bandwidth, which could lead to slower response times or system failures. The internet infrastructure in the countries and regions where we operate our business may not support the demands associated with continued growth in internet usage. This would cause a disruption or suspension in our lesson delivery, which could hurt our brand and reputation. We may need to incur additional costs to upgrade our technology infrastructure and computer systems in order to accommodate increased demand if we anticipate that our systems cannot handle higher volumes of traffic in the future.

All of our servers and routers, including backup servers, are currently hosted by third-party service providers in Singapore. We do not maintain any backup servers outside of Singapore. We also rely on major telecommunication companies to provide us with data communications capacity primarily through local telecommunications lines and internet data centers to host our servers. We may not have access to alternative services and we have no control over the costs of services. If the prices that we pay for telecommunications and internet services in the countries and regions where we operate our business rise significantly, our gross profit and net income could be adversely affected. In addition, if internet access fees or other charges to internet users increase, our visitor traffic may decrease, which in turn may harm our revenues.

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The PCAOB had historically been unable to inspect our former auditor in relation to its audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our former auditor in the past has deprived our investors with the benefits of such inspections.

Our former auditor was PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm that issued the audit report for fiscal years 2021 included elsewhere in this annual report. Our former auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely our current auditor, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely our current auditor. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.

Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.

On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our former auditor was subject to that determination. In June 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. In addition, our current auditor is an accounting firm based in Manhattan, New York, which is not included in the determination announced by the PCAOB on December 16, 2021 and is registered with the PCAOB and is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2023.

Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely our current auditor, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.

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Higher labor costs, inflation and implementation of stricter labor laws in the countries and regions where we operate our business may adversely affect our business, financial conditions and results of operations.

We incur labor costs in the countries and regions where we operate our international business. For example, we are required by laws and regulations in mainland China to pay various statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated governmental agencies for the benefit of our employees. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our students by increasing prices for our courses or improving the utilization of our staff, our profitability and results of operations may be materially and adversely affected. Furthermore, the government in the countries and regions where we operate may promulgate new laws and regulations to enhance labor protection. As the interpretation and implementation of these new laws and regulations are still evolving, our employment practice may not at all times be deemed in compliance with the new laws and regulations. For instance, since December 2015, we have outsourced part of our marketing and sales functions to independent third-party suppliers who provide management and business outsourcing services to us in mainland China and other countries and regions where we operate. There remains a degree of uncertainty as to whether this service outsourcing arrangement will be deemed a labor dispatch arrangement under current laws and regulations of mainland China. If the authorities take the view that this outsourcing arrangement constitutes labor dispatch and thus violates the labor laws, we may be ordered to terminate this outsource arrangement and may even be fined. If we are subject to penalties or incur significant liabilities in connection with labor disputes or investigation, our business and profitability may be adversely affected.

In addition, our future success depends, to a significant extent, on our ability to engage, train and retain qualified personnel in the countries and regions where we operate our business, particularly experienced independently contracted tutors with expertise in English education. Our experienced mid-level managers in the countries and regions where we operate our business are instrumental in implementing our business strategies, executing our business plans and supporting our business operations and growth. We benefit from lower labor costs in the countries and regions where we operate our business, but countries and regions where we operate our business are subject to relatively high degrees of political and social instability. Disruptions resulting from this instability could decrease our efficiency and increase our costs. Any political or economic instability in the countries and regions where we operate our business could result in our having to replace or reduce these labor sources, which may increase our labor costs and have an adverse impact on our results of operations.

Our pool of independently contracted tutors is mainly from the Philippines. We engage our independently contracted foreign tutors as independent contractors whose rights differ from those of employees. There are uncertainties in determining whether a service provider is an independent contractor or an employee. The level and extent of control exercised by the hiring entity, among other factors, would determine the employment status. Our labor costs will increase if we engage our independently contracted tutors in the countries and regions where we operate our business as full-time employees or if courts or other authorities in the countries and regions where we operate our business determine that our independently contracted tutors are deemed employees instead of independent contractors.

We also rely on some third-party vendors in Hong Kong to handle the payment of the compensation of our foreign tutors. Any failure of this vendor to provide these services may negatively impact our relationships with tutors in the countries and regions where we operate our business, damage our reputation and cause us to lose tutors while making it difficult to find replacement tutors.

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Some students may decide not to continue taking our courses for a number of reasons, including a perceived lack of improvement in their English proficiency or general dissatisfaction with our programs, which may adversely affect our business, financial condition, results of operations and reputation.

The success of our business depends in large part on our ability to retain our students by delivering a satisfactory learning experience and improving their English proficiency. If students feel that we are not providing them the experience they are seeking, they may choose not to renew their existing packages. For example, our education programs may fail to significantly improve a student’s English proficiency. There are no standard assessments or tests to measure the effectiveness of our lessons or teaching methods, and our ability to improve the English proficiency of our students is largely dependent upon the interests, efforts and time commitment of each student. Student satisfaction and, parent satisfaction with our programs may decline for a number of reasons, many of which may not reflect the effectiveness of our lessons and teaching methods. A student’s learning experience may also suffer if his or her relationship with our tutors does not meet expectations. If a significant number of students fail to significantly improve their English proficiency after taking our lessons or if their learning experiences with us are unsatisfactory, they may not purchase additional lessons from us or refer other students to us and our business, financial condition, results of operations and reputation would be adversely affected.

Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly and ineffective.

We believe that our copyrights, trademarks and other intellectual property are essential to our success. We depend to a large extent on our ability to develop and maintain the intellectual property rights relating to our technology and course materials. We have devoted considerable time and energy to the development and improvement of our websites, mobile apps, our Air Class platform and our course materials.

We rely primarily on copyrights, trademarks, trade secrets and other contractual restrictions for the protection of the intellectual property used in our business. Nevertheless, these provide only limited protection and the actions we take to protect our intellectual property rights may not be adequate. Our trade secrets may become known or be independently discovered by our competitors. Third parties may in the future pirate our course materials and may infringe upon or misappropriate our other intellectual property. Infringement upon or the misappropriation of, our proprietary technologies or other intellectual property could have a material adverse effect on our business, financial condition or operating results. Policing the unauthorized use of proprietary technology can be difficult and expensive.

Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Such litigation may be costly and divert management’s attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. Enforcement of judgments in certain countries and regions where we operate, such as mainland China, is uncertain, and even if we are successful in litigation and purchase insurance in advance to cover costs arising from litigation, these may not provide us with an effective and adequate remedy. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We may encounter disputes from time to time relating to our use of intellectual property of third parties.

We cannot be certain that third parties will not claim that our business infringes upon or otherwise violates patents, copyrights or other intellectual property rights that they hold. We cannot assure you that third parties will not claim that our courses and marketing materials, online courses, products, and platform or other intellectual property developed or used by us infringe upon valid copyrights or other intellectual property rights that they hold. We may be subject to claims by educational institutions and organizations, content providers and publishers, competitors and others on the grounds of intellectual property rights infringement, defamation, negligence or other legal theories based on the content of the materials that we or our tutors distribute or use in our business operation. These types of claims have been brought, sometimes successfully, against print publications and educational institutions in the past. We may encounter disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in those disputes.

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Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our management’s attention and resources or result in the loss of goodwill associated with our brand. If a lawsuit against us is successful, we may be required to pay substantial damages and/or enter into royalty or license agreements that may not be based upon commercially reasonable terms, or we may be unable to enter into such agreements at all. We may also lose, or be limited in, the rights to offer some of our programs, parts of our platform and products or be required to make changes to our course materials or websites. As a result, the scope of our course materials could be reduced, which could adversely affect the effectiveness of our curriculum, limit our ability to attract new students, harm our reputation and have a material adverse effect on our results of operations and financial position.

Failure to protect confidential information of our tutors and students against security breaches could damage our reputation and brand and substantially harm our business and results of operations.

A significant challenge to the online education industry is the secure storage of confidential information and its secure transmission over public networks. Purchases of our course packages are made through our website, our mobile apps bank remittance, bank card, and third party platforms. In addition, online payments for our course packages are settled through third-party online payment services. Maintaining complete security for the storage and transmission of confidential information on our technology platform, such as student names, personal information and billing addresses, is essential to maintaining student confidence.

We have adopted security policies and measures to protect our proprietary data and student information. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information we hold as a result of our students’ visits to our website and use of our mobile apps. Such individuals or entities obtaining our students’ confidential or private information may further engage in various other illegal activities using such information. Any negative publicity on our website’s or mobile apps’ safety or privacy protection mechanisms and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have a material and adverse effect on our public image, reputation, financial condition and results of operations.

Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the internet and mobile platforms have recently come under increased public scrutiny. Furthermore, there are a number of legislative proposals in the European Union and the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations in areas affecting our business. We generally comply with industry standards and are subject to the terms of our own privacy policies. Compliance with any additional laws or regulations concerning data protection, or the interpretation and application of existing data protection laws or regulations, which is often uncertain and in flux, could be expensive, and may place restrictions on the conduct of our business and the manner in which we interact with our students. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against us.

Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with our privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other student data, could cause our students to lose trust in us and could expose us to legal claims. Any perception by the public that online transactions or the privacy of user information are becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of online education services generally, which may negatively impact our business prospects.

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We face risks related to outbreaks of health epidemics, natural disasters, and other extraordinary events, which could significantly disrupt our operations and adversely affect our business, financial condition or results of operations.

Our business could be adversely affected by the outbreak of Zika, Ebola, avian influenza, severe acute respiratory syndrome, or SARS, the influenza A (H1N1), H7N9, COVID-19 or other epidemics. Any of such occurrences could cause severe disruption to our daily operations, and may even require a temporary closure of our offices. Such closures may disrupt our business operations and adversely affect our results of operations. Our operation could also be disrupted if any of our students, tutors or business partners were affected by such health epidemics.

The COVID-19 pandemic and the measures to contain its spread had from time to time resulted in business disruptions in the countries and regions where we operate. Our operations in countries and regions where we operate were affected by outbreaks of COVID-19 and precautions taken in response there. We engage independently contracted tutors and operate offices in the Philippines. Both our employees and independently contracted tutors who work from home as a result of the outbreak suffered from declining efficiency or effectiveness as well as network quality issues. In addition, the spending power of our students in the international markets have been negatively affected as the global or local economies are negatively affected by outbreaks of COVID-19, which in turn adversely affect our business, financial condition or results of operations. We are unable to predict the duration and extent of health epidemics, including the COVID-19 pandemic as well as evolving measures to contain it. In the event that a health epidemic cannot be effectively and timely contained, our ability to consistently offer online lessons and related services in the future may be significantly disrupted, which in turn may harm the growth rate and retention of our students, as well as our financial performance generally.

We are also vulnerable to natural disasters and other calamities, including fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks, and any other severe weather conditions or similar event may give rise to loss of personnel, damages to property, server interruptions, breakdowns, technology platform failures or internet failures, where our operations could be materially and adversely affected.

We are subject to certain regional political, regulatory and economic risks that may have a material adverse effect on our results of operations.

We have developed our international business and are subject to risks associated with doing business internationally and in differing political and regulatory environments. In certain international markets, governments continue to play a significant role in regulating industry development by imposing industrial policies. For example, rising trade and political tensions, including those arising from the conflict in Ukraine and sanctions on Russia and the conflict in the Gaza Strip, could reduce levels of trades, investments, technological exchanges and other economic activities between China and other countries, which would have an adverse effect on global economic conditions, the stability of global financial markets, and international trade policies. It could also adversely affect the financial and economic conditions in the jurisdictions in which we operate, as well as our international expansion, our financial condition, and results of operations.

Accordingly, our business, results of operations and financial condition may be materially and adversely affected by significant political, social and economic developments in those places or changes in laws and regulations of those places. Any changes in the political and economic conditions of those places could materially affect our business and results of operations. Any failure to comply with regulations in those places could subject us to legal and reputational risks.

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Our brand image, business and results of operations may be adversely impacted by students and independently contracted tutors’ misconduct and misuse of our platform.

Our platforms allow independently contracted tutors and students to engage in real-time communication. Because we do not have full control over how and what our independently contracted tutors and students will use our platform to communicate, our platforms may from time to time be misused by individuals or groups of individuals to engage in immoral, disrespectful, fraudulent or illegal activities. Though there have not been any such incidents on our platform that have been covered by media reports or internet forums, any such coverage could generate negative publicity about our brand and platform. We have implemented control procedures, such as training and sample auditing, to require our independently contracted tutors not to distribute any illegal or inappropriate content and conduct any illegal or fraudulent activities on our platforms, but such procedures may not prevent all such content or activities from being posted or carried out. Moreover, as we have limited control over the real-time and offline behavior of our students and independently contracted tutors, to the extent such behavior is associated with our platforms, our ability to protect our brand image and reputation may be limited. Our business and the public perception of our brand may be materially and adversely affected by misuse of our platform. In addition, if any of our students or independently contracted tutors suffers or alleges to have suffered physical, financial or emotional harm following contact initiated on our platform, we may face civil lawsuits or other liabilities initiated by the affected student or independently contracted teacher, or governmental or regulatory actions against us. In response to allegations of illegal or inappropriate activities conducted on our platform or any negative media coverage about us, the competent governmental authorities where we operate our international business may intervene and hold us liable for non-compliance with applicable laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the features and services provided on our platform. As a result, our business may suffer and our brand image, student base, results of operations and financial condition may be materially and adversely affected.

Our employees may engage in misconduct or other improper activities or misuse our platform, which could harm our reputation.

We are exposed to the risk of employee fraud or other misconduct. Employee misconduct could include intentionally failing to comply with government regulations, engaging in unauthorized activities and misrepresentation to our potential students during marketing activities, which could harm our reputation. Employee misconduct could also involve improper use of our students’ and independently contracted tutors’ sensitive or classified information, which could result in regulatory sanctions against us and serious harm to our reputation. Employee misconduct could also involve making payments to government officials or third parties that would expose us to being in violation of laws. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could harm our business, financial condition and results of operations.

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Allegations, harassment or other detrimental conduct by third parties, as well as the public dissemination of negative, inaccurate or misleading information about us, could harm our reputation and adversely affect the price of our ADSs.

We may be subject to allegations by third parties or purported current or former employees, negative internet postings or other negative, inaccurate or misleading publicity related to our business and operations. We may also become the target of harassment or other detrimental conduct by third parties or disgruntled former or current employees. Such conduct may include complaints, anonymous or otherwise, to our board, advisors, regulatory agencies, media or other organizations. Depending on their nature and significance, we may need to conduct internal investigations to appropriately review any such allegations. We may also be subject to government or regulatory inquiries or, investigations or other proceedings as a result of such third-party conduct and may be required to spend significant time and incur substantial costs to address such conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Allegations may be posted on the internet, including social media platforms, by anyone anonymously. Any negative, inaccurate or misleading publicity about us or our management can be quickly and widely disseminated. Social media platforms and devices immediately publish the content of their subscribers’ and participants’ posts, often without filters or checks on the accuracy of the content posted. Information posted on the internet or otherwise publicly released, including by us or our employees, may be inaccurate or misleading, and the information or the inaccurate or misleading nature of the information, may harm our reputation, business or prospects. The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public dissemination of negative, inaccurate, or misleading information about our business and operations, which in turn may cause us to lose market share or students, and adversely affect the price of our ADSs.

We may not be able to achieve the benefits we expect from recent and future acquisitions, and recent and future acquisitions may have an adverse effect on our ability to manage our business.

Going forward, we may make acquisitions or investments and may not be able to successfully integrate acquired businesses or have control over the businesses or operations of our minority equity investments, the value of which may decline over time. As a result, our business and operating results could be harmed. In addition, if the businesses we acquire or invest in do not subsequently generate the anticipated financial performance or if any goodwill impairment test triggering event occurs, we may need to revalue or write down the value of goodwill and other intangible assets in connection with such acquisitions or investments, which would harm our results of operations. In addition, we may be unable to identify appropriate acquisition or strategic investment targets when it is necessary or desirable to make such acquisition or investment to remain competitive or to expand our business. Even if we identify an appropriate acquisition or investment target, we may not be able to negotiate the terms of the acquisition or investment successfully, finance the proposed transaction or integrate the businesses into our existing business and operations. Furthermore, as we often do not have control over the companies in which we only have minority stake, we cannot ensure that these companies will always comply with applicable laws and regulations in their business operations. Material non-compliance by our investees may cause substantial harms to our reputations and the value of our investment.

Failure to renew our current leases or locate desirable alternatives for our facilities could materially and adversely affect our business.

We lease properties for our offices in mainland China, the Philippines, Malaysia, Hong Kong, Thailand and other countries and regions where we operate. We may not be able to successfully extend or renew such leases upon expiration of the current term on commercially reasonable terms or at all, and may therefore be forced to relocate our affected operations. This could disrupt our operations and result in significant relocation expenses, which could adversely affect our business, financial condition and results of operations. In addition, we compete with other businesses for premises at certain locations or of desirable sizes. As a result, even though we could extend or renew our leases, rental payments may significantly increase as a result of the high demand for the leased properties. In addition, we may not be able to locate desirable alternative sites for our facilities as our business continues to grow and failure in relocating our affected operations could adversely affect our business and operations.

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The wide variety of payment methods that we accept subjects us to third-party payment processing-related risks.

We accept payments using a variety of methods, including bank transfers and payment through third-party online payment platforms such as Airwallex, Stripe, Paypal, Atome, Payermax, Checkout and Ipay88. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower our profit margins. We may also be susceptible to fraud and other illegal activities in connection with the various payment methods we offer. We are also subject to various rules, regulations and requirements, regulatory or otherwise, governing electronic funds transfers which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and become unable to accept credit and debit card payments from our students, process electronic funds transfers or facilitate other types of online payments, and our business, financial condition and results of operations could be materially and adversely affected. With the expansion of our business to different countries and regions, we use more and more third-party platforms to collect payment. We could not guarantee that all of such platforms will timely and fully transfer the collected payments to us or will be in a good financial position to do so. If any of the third-party online payment platforms breaches the contracts and fails to transfer any payments to us, it may have a material adverse effect on our business and financial condition.

If our senior management is unable to work together effectively or efficiently or if we lose their services, our business may be severely disrupted.

Our success heavily depends upon the continued services of our management. In particular, we rely on the expertise and experience of Mr. Jack Jiajia Huang, our founder, chairman and chief executive officer, and Ms. Ting Shu, our co-founder and director . Mr. Jack Jiajia Huang and Ms. Ting Shu are husband and wife. We also rely on the experience and services from other senior management, including Ms. Cindy Chun Tang, our chief financial officer. If they cannot work together effectively or efficiently, our business may be severely disrupted. If one or more of our senior management were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. If any of our senior management joins a competitor or forms a competing business, we may lose students, tutors, and other key professionals and staff members. Our senior management has entered into employment agreements with us, including confidentiality and non-competition clauses. However, if any dispute arises between our officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in mainland China or we may be unable to enforce them at all.

Fluctuations in foreign currency exchange rates may materially and adversely affect our results of operations.

We operate in multiple international markets, which exposes us to the effect of fluctuations in currency exchange rates as we report our financials in U.S. dollars. We charge customers fees in local currencies in some countries and regions where we offer our course offerings, a significant portion of our assets and liabilities are denominated in US dollars and Renminbi, and a significant portion of our costs are incurred in the currencies of the countries and regions where we operate, including service fee payments to nearly all of our foreign tutors. For example, we engage independently contracted tutors and lease properties in the Philippines. We are exposed to the risk of cost increases due to inflation in the Philippines and other countries and regions and the depreciation of US dollars. Currency fluctuations in the currencies of the countries and regions where we operate could create economic instability that may increase our expenses and harm our business operations.

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Currency fluctuations in the exchange rates among the various currencies that we use could create economic instability that may increase our expenses and harm our business operations. The conversion of one currency into another currency is based on rates set by responsible authorities in each of the countries and regions where we operate and is affected by, among other things, changes in each country or region’s political and economic conditions and its foreign exchange policies. Any significant appreciation or depreciation of the currencies of the countries and regions where we operate may have a material and adverse effect on the value of, and any dividends payable on, our ADSs in U.S. dollars and your investment. For example, to the extent that we need to convert U.S. dollars into Renminbi for capital expenditures and working capital, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert the local currencies where we operate our business into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the local currencies would have a negative effect on the U.S. dollar amount available to us. We cannot assure you that the currencies of the countries and regions where we operate will not appreciate or depreciate significantly in value against U.S. dollar in the future. It is difficult to predict how market forces or government policy may impact the exchange rate among the currencies of the countries and regions where we operate and the U.S. dollar in the future.

Very limited hedging options are available in certain jurisdictions where we operate, such as mainland China, to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by exchange control regulations that restrict our ability to convert between currencies. As a result, fluctuations in exchange rates may increase our expenses and have a material adverse effect on our results of operations.

Our results of operations have been and may continue to be subject to seasonal fluctuations.

Our industry generally experiences seasonality, reflecting a combination of traditional education industry patterns and new patterns associated with the online platform in particular. Seasonal fluctuations affected our business when we focused on lessons for Chinese K-12 students and lessons for students from the international markets, and may continue to affect our business as we shift to new business models. Due to our limited operating history and the fact that we have shifted our focus from lessons for Chinese K-12 students to new business models and service offerings targeting international students, the seasonal trends that we have experienced in the past may not be indicative of our future operating results. Our financial condition and results of operations for future periods may continue to fluctuate. As a result, the trading price of our ADSs may fluctuate from time to time due to seasonality.

We have granted options and restricted share units, and may continue to grant options, restricted share units and other types of awards under our share incentive plans, which may result in increased share-based compensation expenses.

We adopted share incentive plans in September 2013, or the 2013 Plan, and in December 2014, or the 2014 Plan. The 2014 Plan was amended in February 2016. Under the 2013 Plan and the 2014 Plan, we are authorized to grant options or share purchase rights to purchase up to an aggregate of 36,229,922 Class A ordinary shares as of the date of this annual report. The 2013 Plan expired in September 2023 and additional grants may not be made thereunder. In May 2016, we adopted the 2016 share incentive plan, or the 2016 Plan, pursuant to which a maximum of 4,600,000 Class A ordinary shares may be issued pursuant to all awards granted thereunder. Beginning in 2017, the number of shares reserved for future issuances under the 2016 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the immediately preceding calendar year, or such lesser number of Class A ordinary shares as determined by our board of directors, during the term of the 2016 Plan. As of January 1, 2024, the maximum aggregate number of Class A ordinary shares which may be issued pursuant to all awards granted under the 2016 Plan was increased to 42,997,818. As of February 29, 2024, options to purchase a total of 9,476,175 Class A ordinary shares were issued and outstanding, and nil restricted share units were outstanding under the 2014 Plan. As of February 29, 2024, 9,272,714 restricted share units were outstanding under the 2016 Plan. As a result of grants under the 2013 Plan, the 2014 Plan and the 2016 Plan and potential future grants under the 2014 Plan and the 2016 Plan, we have incurred and will continue to incur share-based compensation expenses. We have recognized share-based compensation expense in the amount of US$0.9 million in 2023. We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.

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We have limited insurance coverage for our operations in the countries and regions where we operate our business, which could expose us to significant costs and business disruption.

We do not maintain any liability insurance or property insurance policies covering students, equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster, except for the liability insurance and property insurance policies for certain office in mainland China. Consistent with customary industry practice, we do not maintain business interruption insurance, nor do we maintain key-man life insurance. We maintain personal accident insurance for all employees after six months of employment in mainland China, maintain commercial medical insurance for our management and employees in mainland China and Malaysia, provide government-mandated medical insurance to all of our employees in the Philippines, mainland China and Thailand, and provide supplementary medical insurance to certain of our employees in the Philippines and China. However, as the insurance industry in many countries and regions where we operate, including mainland China, is still in an early stage of development. For example, insurance companies in mainland China currently offer limited business-related insurance products. We also have limited experience dealing with the insurance industry in the Philippines. We do not maintain business interruption insurance, nor do we maintain key-man life insurance We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

If we fail to implement and maintain an effective system of internal controls to remediate our material weaknesses over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.

Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting as of December 31, 2023. However, in auditing our consolidated financial statements for the fiscal year ended December 31, 2023, our management and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting in accordance with the standards established by the Public Company Accounting Oversight Board of the United States, or the PCAOB.

As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. One material weakness identified relates to the lack of sufficient competent financial reporting and accounting personnel to (i) timely identify and assess accounting implications of complex transactions and changes in our service offerings, (ii) design and implement effective control to ensure data completeness and accuracy related to certain complex transactions, and (iii) timely perform account reconciliations in period-end closing and prepare disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. The other material weakness identified relates to the lack of sufficient competent internal audit personnel to timely and effectively monitor and evaluate internal control over financial reporting and assist managing financial and operational risks. We have implemented and will continue to implement a number of measures to address these material weaknesses and other deficiencies that have been identified. For details, see “Item 15. Controls and Procedures.”

However, we cannot assure you that we will be able to continually implement these measures to effectively remediate our material weaknesses, or that we will not identify additional material weaknesses or significant deficiencies in the future.

If we fail to remediate these material weaknesses or to discover and address any other control deficiencies, we could suffer material misstatements in our consolidated financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.

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It may be difficult for international regulators to conduct investigation or collect evidence within the countries and regions where we operate.

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in certain jurisdictions where we operate. For example, in mainland China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside mainland China. Although the authorities in mainland China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no international securities regulator is allowed to directly conduct investigation or evidence collection activities within mainland China. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an international securities regulator to directly conduct investigation or evidence collection activities within mainland China may further increase difficulties faced by you in protecting your interests.

Risks Related to Our Global Operations

We are subject to risks associated with operating in the rapidly evolving Asia, and we are therefore exposed to various risks inherent in operating and investing in the region.

We derive a significant portion of our revenue from our operations in countries and regions located in Asia, and we intend to continue to develop and expand our business and penetration in these countries and regions. Our operations and investments in Asia are subject to various risks related to the economic, political and social conditions of the countries and regions that we operate in, including risks related to the following:

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For example, volatile political situations in certain Asian countries and regions could impact our business. Past presidential elections in the Philippines have led to uncertainty, impacting markets and leading to unrest. Any disruptions in our business activities or volatility or uncertainty in the economic, political or regulatory conditions in the markets we operate in could adversely affect our business, financial condition, results of operations and prospects. Any of the foregoing risks may adversely affect our business, financial condition, results of operations and prospects.

Uncertainties in the interpretation and enforcement of laws and regulations of mainland China could limit the legal protections available to you and us.

The legal system of mainland China is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. The PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

Our mainland China subsidiaries are foreign-invested enterprises and are subject to laws and regulations applicable to foreign-invested enterprises as well as various Chinese laws and regulations generally applicable to companies incorporated in mainland China. However, since these laws and regulations are relatively new and the legal system of mainland China continues to evolve, the interpretations and enforcement of these laws, regulations and rules are subject to change.

The timeline for amending or promulgating a law or regulation may vary widely. Besides, legislation or regulations, particularly in local applications, may be enacted without sufficient prior notice or announcement to the public. It is difficult to anticipate when rules or regulations in the jurisdictions where we operate may be amended or new rules or regulations may be enacted, and rules or regulations in the jurisdictions where we operate may be changed with little advance notice. Furthermore, in countries and regions that are divided into various provinces, municipalities or localities, different laws, rules, regulations and policies may have different and varying application and enforcement practices in different parts of that country or region.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since administrative and court authorities in mainland China have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we may enjoy than in more developed legal systems. Furthermore, the legal system of mainland China is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in mainland China may be protracted, resulting in substantial costs and diversion of resources and management attention. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in mainland China could materially and adversely affect our business and impede our ability to continue our operations.

Rising geopolitical tension between the countries and regions where we operate our business may disrupt the economy and business environment the countries and regions where we operate our business, which may negatively impact our business operations in these countries and regions.

Certain countries and regions where we operate our business have geopolitical tension with one another. In particular, the Philippines, China and several Southeast Asian nations have had a series of long-standing territorial disputes over certain islands in the South China Sea. The Philippines brought the dispute to arbitration, of which the ruling was rejected by China. Moreover, there has been the tensions in the Taiwan Strait.

Although the diplomatic relationship between China and the Philippines has been relatively stable in recent years, we cannot be sure that the territorial disputes will not escalate or new disputes will not arise in the future. Should these territorial disputes continue or escalate further, the Philippines and its economy may be disrupted and our operations could be adversely affected as a result. In particular, further disputes between the Philippines and China may lead both countries to impose trade restrictions on the other’s imports. Any such impact from these disputes could adversely affect the Philippine economy, and materially and adversely affect our business, financial position and financial performance.

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Furthermore, as majority of our independently contracted tutors are from the Philippines any significant deterioration in China’s political relations with the Philippines could make it more difficult for us to attract independently contracted tutors or hire employees in the Philippines, and discourage some of our students from purchasing our course packages or our independently contracted tutors from offering lessons. Any prolonged intense diplomatic relations between China and the Philippines may adversely affect our business. Any current territorial disputes among the countries and regions where we operate our business may negatively impact our business operations in these foreign countries.

Changes in mainland China’s economic, political or social conditions or government policies could have a material and adverse effect on our business and results of operations.

We conduct part of our operations through our subsidiaries in mainland China. Accordingly, our operations, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in mainland China generally and by continued economic growth in mainland China as a whole. In addition, as all the operational risks associated with having operations in mainland China also apply to operations in Hong Kong, our operations in Hong Kong are also subject to the operational risks associated with having operations in mainland China.

The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China are still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant influence over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our operations. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Although the Chinese economy has grown in recent years, its growth rate has declined and may continue to decline. Any prolonged slowdown in the global and Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.

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Our mainland China subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.

We are a holding company incorporated in the Cayman Islands and conduct part of our operations, which pertains to research and development, administration and sales and marketing, through our mainland China subsidiaries. We derive revenues from our business conducted through our offshore subsidiaries. However, there is no assurance that we would not need dividends and other distributions on equity from our mainland China subsidiaries to satisfy our liquidity requirements. Current mainland China regulations permit our mainland China subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our mainland China subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our mainland China subsidiaries may also allocate a portion of its after-tax profits based on mainland China accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if our mainland China subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. In addition, the mainland China tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect our mainland China subsidiaries’ ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiaries to distribute dividends to us may restrict our ability to satisfy our liquidity requirements.

In addition, the PRC Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

Governmental regulation of currency conversion in mainland China may affect the value of your investment.

The mainland China government imposes regulations on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of mainland China. We charge customers fees in local currencies in some countries and regions outside mainland China where we offer our course offerings, and a significant portion of our costs are incurred in the currencies of the countries and regions where we operate.

As we primarily derive our revenue from our operations in countries and regions outside mainland China, we are more likely to rely on dividend payments or other distributions from our offshore subsidiaries, if our offshore subsidiaries decide to do so. Additionally, under our current corporate structure, our company in the Cayman Islands may also rely on dividend payments from our mainland China subsidiaries to fund any cash and financing requirements we may have, in the event that our mainland China subsidiaries have accumulated profits to be distributed after meeting their operational needs and legal and contractual requirements related to dividend distribution. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Therefore, our mainland China subsidiaries in mainland China are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. But approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The mainland China government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

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The M&A Rules and certain other regulations of mainland China establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in mainland China.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of mainland China domestic companies and controlled by mainland China companies or individuals to obtain the approval of the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas listings. The application of the M&A Rules remains unclear.

The M&A Rules discussed in the preceding paragraph and recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a mainland China domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or mainland China time-honored brand. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the Ministry of Commerce when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings issued by the State Council in August 2008 is triggered. In addition, the security review rules issued by the Ministry of Commerce that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may expand our operations in mainland China through acquisition. Complying with the requirements of the above-mentioned regulations and other rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce or its local counterparts may delay or inhibit our ability to complete such transactions. Our ability to expand our operations in mainland China through future acquisitions would as such be materially and adversely affected.

We could face uncertain tax liabilities in various countries and regions in which we operate, which could adversely impact our operating results.

We are subject to the tax laws and policies of each of the countries and regions in which we operate. Since legislation and other laws and regulations (particularly in relation to tax) in emerging markets, such as the markets where we operate, are often undeveloped and the interpretation, application and enforcement of tax laws and policies in emerging market countries is uncertain, there is a risk that we may be unable to determine our taxation obligations with certainty.

We obtain external tax advice from time to time on the application of tax laws to our operations. Due to the aforementioned challenges of interpretation and consistency of application and enforcement, obtaining such advice may be difficult and opinions on the law may differ. The determination of our provision for tax liabilities requires significant judgment and estimation and there are classifications, transactions and calculations where the ultimate tax payable is uncertain.

Our tax exposure and obligations exist in each of the countries and regions in which we presently operate and provide course offerings and may arise in other countries or regions in the future in the event that we commence operations in such new countries or regions, either organically or through acquisitions. These risks may increase when we acquire a business, particularly to the extent that there are limitations or restrictions on the scope or nature of the financial, tax and other due diligence investigations that we are able to undertake in connection with the acquisition, or where the vendors withhold material information. Given the nature of our business, we are also exposed to the general changes in digital taxation policy that are happening globally.

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From time to time, we establish provisions to account for uncertainties as well as timing and accounting differences in respect of income tax and indirect taxes, including, but not limited to, in relation to businesses that are acquired by us. While we have established our tax and other provisions using assumptions and estimates that we believe to be reasonable, these provisions may prove insufficient given the risks and uncertainties inherent in the taxation systems in the countries and regions where we operate. Any adverse determinations by a revenue authority in relation to our tax obligations may have an adverse effect on our business, financial condition and results of operations, and may adversely impact our operations in the country or region and our reputation.

The mainland China government’s significant oversight and discretion over our operations in mainland China could result in a material adverse change in our operations and the value of our ADSs.

We conduct our operations in mainland China through our mainland China subsidiaries. Our operations in mainland China are governed by laws and regulations of mainland China. The mainland China government has significant oversight and discretion over the conduct of our operations in mainland China, and it may intervene in or influence our operations. For example, we divested our China Mainland Business in June 2022 and have since focused on our international business. However, there is no assurance that governmental authorities in mainland China would fully apprehend the impact of the divestiture of our China Mainland Business and our on-going operations and may consider that we are still subject to the Alleviating Burden Opinion. As a result, governmental authorities in mainland China may take actions against us, which could result in a material adverse change in our operation, and our ordinary shares and ADSs may decline in value or become worthless. Also, Chinese regulatory authorities could disallow our holding company structure, which would likely result in a material change in our operations and/or a material change in the value of our securities, including that it could cause the value of such securities to significantly decline or become worthless. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and foreign investment in issuers with significant operations in mainland China depending on the facts and circumstances. In the event that we are required to seek approval, permissions or other actions from mainland China’s regulatory authorities in connection with our offerings that are conducted overseas and foreign investment in our mainland China subsidiaries, failure to comply with any legal and regulatory requirements of mainland China in relation to overseas securities issuance or foreign investment could significantly limited or completely hindered our ability to offer or continue to offer securities to investors or cause the value of our ADSs to significantly decline or become worthless. Therefore, investors of our company face potential uncertainty from actions taken by the PRC government affecting our operations in mainland China.

In addition, to the extent cash or other assets in the business is in mainland China or a mainland China entity, the funds or other assets may not be available to fund operations or for other use outside of mainland China due to the imposition of restrictions and limitations on the ability of 51Talk Online Education Group or its subsidiaries to transfer cash or other assets. As of the date of this annual report, there is no equivalent or similar restriction or limitation in Hong Kong on cash or other assets transfers in, or out of, our Hong Kong entities, except for the transfer of funds involving money laundering and criminal activities. However, if restrictions or limitations were to become applicable to cash or other assets transfers in and out of Hong Kong entities in the future, the funds or other assets in our Hong Kong entities may not be available to fund operations or for other use outside of Hong Kong. There is no assurance that the ability of us, our subsidiaries and the former mainland China consolidated VIEs to transfer cash will not subject to further limitations or restrictions.

Some students may decide to register for our online or mobile platform and attend our courses from mainland China, which may be deemed by government authorities in mainland China as circumventing the restrictions on after-school tutoring taught by foreign tutors to K-12 students in mainland China. If the government authorities in mainland China take actions against us, our business and operations could be materially and adversely affected.

The General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the Alleviating Burden Opinion on July 24, 2021, which sets out a series of operating requirements on after-school tutoring institutions. The Alleviating Burden Opinion and its subsequently adopted implementation measures prohibited our historically offered online tutoring services taught mainly by independently contracted foreign tutors to K-12 students in mainland China.

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In response to the regulatory developments in the private education sector in mainland China since mid-2021, we have divested our China Mainland Business and are completely focused on international markets. After the divestiture of our China Mainland Business, we started to offer English courses to students in countries and regions outside of mainland China. If students from mainland China wish to access our course offerings, they may register for our online or mobile platform and attend our courses from mainland China. For example, students may by-pass our geolocation settings to register for and attend our courses. There are no comprehensive methods to prevent students from mainland China to purchase and use our platform, and our ability to adopt technological safeguards are limited. If students from mainland China register for or use our platform for English courses, we and our operations may be deemed by the government authorities in mainland China to circumvent the restrictions on after-school tutoring taught by foreign tutors to K-12 students in mainland China.

The enforcement of the Labor Contract Law and other labor-related regulations in mainland China may adversely affect our business and our results of operations.

Our research and development team, administrative team and part of our sales and marketing team are based in mainland China, which subjects us to labor laws and regulations in mainland China. The PRC Labor Contract Law was issued on June 29, 2007, and was later amended on December 28, 2012. It has reinforced the protection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contracts with no fixed terms under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. According to the PRC Social Insurance Law, which became effective on July 1, 2011 and was amended on December 29, 2018, and the Administrative Regulations on the Housing Funds, Companies operating in mainland China are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance and housing funds plans, and the employers must pay all or a portion of the social insurance premiums and housing funds for their employees.

As a result of these laws and regulations designed to enhance labor protection, we expect our labor costs will continue to increase. In addition, as the interpretation and implementation of these laws and regulations are still evolving, our employment practice may not at all times be deemed in compliance with the new laws and regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our business and results of operations may be adversely affected.

PRC regulations relating to foreign exchange registration of international investment by mainland China residents may subject our mainland China resident beneficial owners or our mainland China subsidiaries to liability or penalties, limit our ability to inject capital into these subsidiaries, limit mainland China subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

A series of circulars promulgated by government authorities require mainland China residents to register with qualified banks in connection with their direct establishment or indirect control of an offshore entity, for the purpose of international investment and financing, with such mainland China residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, which is referred to in SAFE Circular 37 as a “special purpose vehicle.” In the event that a mainland China resident holding interests in a special purpose vehicle fails to complete the required SAFE registration, the mainland China subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its mainland China subsidiaries. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

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We cannot assure you that all of our shareholders or beneficial owners who are mainland China residents will at all times comply with, or in the future make or obtain any applicable registrations or approvals required by foreign exchange regulations. Mr. Jack Jiajia Huang and Ms. Ting Shu, who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being mainland China residents have completed the initial foreign exchange registrations, amended their registrations to reflect our corporate restructuring in November 2014. In addition, we may not at all times be fully aware or informed of the identities of all our shareholders or beneficial owners that are required to make such registrations, and we may not be able to compel them to comply with all applicable foreign exchange regulations. The failure or inability of such individuals to comply with the registration procedures set forth in these regulations may subject us to fines or legal sanctions, restrictions on our cross-border investment activities, or obtain foreign-exchange-dominated loans from our company, or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the government authorities. We cannot predict how these regulations will affect our business operations or future strategy. In addition, if we decide to acquire a mainland China domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

PRC regulation on loans to, and direct investment in, mainland China entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our equity offerings to make loans to our mainland China subsidiaries or make additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We are an offshore holding company conducting our operations in mainland China through our mainland China subsidiaries. We may make loans to our mainland subsidiaries subject to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to our mainland China subsidiaries.

Any loans to our mainland China subsidiaries, which are treated as a foreign-invested enterprise under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our mainland China subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local branch of the SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by or filed with, as the case may be, the Ministry of Commerce or its local counterpart and the amount of registered capital of such foreign-invested company. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—PRC Regulations—Regulations Relating to Foreign Investment.” The difference between the total amount of investment and the registered capital for HelloWorld Online is approximately US$15 million. We may also decide to finance our mainland China subsidiaries by means of capital contributions. Our capital contributions to our mainland China subsidiary HelloWorld Online, foreign-invested enterprises that we believe do not fall within the scope of special administration measures for foreign investment admission, must be filed with the Ministry of Commerce or its local counterpart. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—PRC Regulations—Regulations Relating to Foreign Investment.” We cannot assure you that we will be able to complete the necessary registration on a timely basis, or at all. If we fail to complete the necessary registration, our ability to make loans or equity contributions to our mainland China subsidiaries may be negatively affected, which could adversely affect our mainland China subsidiaries’ liquidity and its ability to fund its working capital and expansion projects and meet its obligations and commitments.

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SAFE Circular 19 came into force and replaced both SAFE Circular 142 and SAFE Circular 36 on June 1, 2015. SAFE Circular 19 continues to prohibit a foreign-invested enterprise from, among other things, using RMB funds converted from its foreign exchange capitals for expenditure beyond its authorized business scope, providing entrusted loans or repaying loans between non-financial enterprises. On June 9, 2016, SAFE promulgated SAFE Circular 16, which not only provides that, in addition to foreign exchange capital, foreign debt funds and proceeds remitted from foreign listings should also be subject to the discretional foreign exchange settlement, but also lifted the restriction, that foreign exchange capital under the capital accounts and the corresponding Renminbi capital obtained from foreign exchange settlement should not be used for repaying the inter-enterprise borrowings (including advances by the third party) or repaying the bank loans in Renminbi that have been sub-lent to the third party. The provisions prohibiting against a foreign-invested enterprise using RMB funds converted from its foreign exchange capitals for expenditure beyond its authorized business scope, however, survive SAFE Circular 16. Violations of these circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the net proceeds of our equity offerings to fund the establishment of new entities in mainland China by our mainland subsidiaries, to invest in or acquire any other mainland China companies through our mainland China subsidiaries, or to establish new consolidated VIEs in mainland China.

In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, mainland China entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our mainland China subsidiaries or with respect to future capital contributions by us to our mainland China subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from our equity offerings and to capitalize or otherwise fund our mainland China operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings and capital raising activities under the laws of mainland China if the CSRC or other PRC government authorities determine that their regulatory regimes for offshore offerings and capital raising activities apply to us. If required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.

The M&A Rules requires an overseas special purpose vehicle formed for listing purposes through acquisitions of mainland China domestic companies and controlled by mainland China companies or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how long it will take us to obtain the approval and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval is obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in mainland China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.

The new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic companies released on February 17, 2023, or New Filing Rules, establish a new filing-based regime to regulate overseas offerings and listings by domestic companies. According to the New Filing Rules, (i) an overseas offering and listing by a domestic company, whether directly or indirectly, shall be filed with the CSRC; and (ii) the issuer or its affiliated domestic company, as the case may be, shall file with the CSRC for its initial public offering, follow-on offering, issuance of convertible bonds, offshore relisting after go-private transactions and other equivalent offing activities. In addition, after a domestic company has offered and listed securities in an overseas markets, it is required to file a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary or mandatory delisting. However, from March 31, 2023, enterprises that have been listed overseas shall constitute existing enterprises and are not required to conduct the overseas listing filing procedure immediately, but shall carry out filing procedures as required if they conduct future offshore offerings or capital raising activities or are involved in other circumstances that require filing with the CSRC.

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On February 24, 2023, the CSRC, together with other government authorities, issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which became effective on March 31, 2023. According to the Archives Rules, domestic mainland China companies, whether offering and listing securities overseas directly or indirectly, must strictly abide the applicable laws and regulations when providing or publicly disclosing, either directly or through their overseas listed entities, documents and materials to securities services providers such as securities companies and accounting firms or overseas regulators in the process of their overseas offering and listing. If such documents or materials contain any state secrets or government authorities work secrets, domestic companies must obtain the approval from competent governmental authorities according to the applicable laws, and file with the secrecy administrative department at the same level with the approving governmental authority. Furthermore, the Archives Rules also provides that securities companies and securities service providers shall also fulfill the applicable legal procedures when providing overseas regulatory institutions and other institutions and individuals with documents or materials containing any state secrets or government authorities work secrets or other documents or materials that, if divulged, will jeopardize national security or public interest. For more details of the New Filing Rules, please refer to “Item 4. Information on the Company—B. Business Overview—Government Regulations—PRC Regulations—Regulations Relating to Overseas Listing and M&A Rules.”

Under the current PRC laws, rules and regulations, we are subject to the following test in determining whether we and our mainland China subsidiaries are subject to the filing procedures with the CSRC: (i) whether our mainland China subsidiaries account for more than 50% of our operating revenue, profits, total assets or net asset in our audited consolidated financial statements for the most recent completed fiscal year, and (ii) whether the majority of our senior management are Chinese citizens or domiciled in mainland China, or the key aspects of our business activities are conducted in mainland China, or our main places of operations are located in mainland China. Moreover, according to the applicable rules and regulations, the determination of the overseas offerings and listings by domestic companies will be conducted on a “substance over form” basis. As of the date of this annual report, based on the current status of our company and mainland China subsidiaries, it is the opinion of our PRC legal counsel, Shihui Partners that (i) our future offshore offering or listing in an overseas market are not subject to the filing requirements of the CSRC, including our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities, and (ii) we are also not subject to the requirements of filing a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary or mandatory delisting.

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However, there can be no assurance that the CSRC and other PRC government agencies would reach the same conclusion with our PRC legal counsel. In addition, we cannot assure you that any new rules or regulations promulgated in the future will not require us to seek approval from or fulfill the filing requirement or other procedures with the CSRC or other PRC government authorities in connection with our future offshore offerings and capital raising activities. If it is determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, are required for our offshore offerings or capital raising activities, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing procedures and any such approval or filing could be rescinded or rejected. In addition, there are uncertainties with regard to whether any report filed with the CSRC after the occurrence of certain material corporate events will be subject to any further action from the CSRC in the event that our future offshore offerings and capital raising activities are subject to the regulatory regimes of the CSRC or other PRC government authorities. Any failure to obtain or delay in obtaining such approval or completing such filing procedures for our offshore, offerings, capital raising activities or certain material corporate events, or a rescission of any such approval or filing if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or filing or other government authorization for our offshore offerings, capital raising activities or certain material corporate events. These regulatory authorities may impose fines and penalties on our operations in mainland China, limit our operating privileges in mainland China, delay or restrict the repatriation of the proceeds from our offshore offerings into mainland China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our listed securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings or capital raising activities before settlement and delivery and further actions of the shares offered or take any actions regarding our material corporate events. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement, delivery and further actions may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings or capital raising activities, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our listed securities.

We provide our course offerings to our students in Hong Kong and are subject to laws, rules and regulations governing the accessibility and content of our course offerings, such as the Education Ordinance and anti-discrimination laws. Non-compliance with the laws and regulations regarding our operations in Hong Kong may materially and adversely affect our reputation, business operations and prospects.

We provide our course offerings to our students in Hong Kong through our apps. The Education Ordinance sets out the requirements for schools and educational institutions in Hong Kong, including the curriculum, teacher qualifications, and student assessment. The Education Bureau may suspend or revoke the license of a school or educational institution that is found to be in violation of the Education Ordinance. In addition, the education content provided by an education company must be accurate and complete. Inaccurate or incomplete educational content may be in violation of the Education Ordinance and may be subject to fines or legal action.

We are also subject to anti-discrimination laws when we provide our course offerings to students in Hong Kong. The anti-discrimination laws in Hong Kong require education companies to ensure that their educational content is accessible to all students, including those with disabilities. Failure to provide accessible content may be in violation of anti-discrimination laws and may result in legal action or reputational damage.

Non-compliance with the regulations of Hong Kong may lead to a loss in business as a result of reputational damage or loss of trust from customers as we may be not seen as trustworthy or reliable and may struggle to attract and retain customers. Negative publicity or consumer backlash can make it more difficult for us to attract new customers or retain existing ones, as trust and credibility are important factors for students and parents to consider when selecting educational services. As a result, we may be forced to scale back our operations and even unable to operate in Hong Kong and our business operations and prospects may be adversely and materially affected.

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Information regarding our course offerings to customers are regulated by a series of laws and regulations, including consumer protection laws in Hong Kong. We may be found in violation of consumer protection laws, which could materially and adversely affect our business and financial conditions.

We promote our course offerings in Hong Kong and are subject to laws, rules and regulations governing information delivered to consumers in Hong Kong. For example, the consumer protection laws in Hong Kong require that companies be transparent in their operations and provide clear and accurate information to their customers. This includes information about course content, pricing, and refund policies, among other things. Government authorities may not agree with us in terms of the scope and extent of information transparency and may determine that we fail to provide transparent information to our customers. As a result, we may be found in violation of consumer protection laws and may be subject to fines or legal action, which may materially and adversely affect our business and financial conditions. In addition, laws related to advertising in Hong Kong require the advertising be truthful and not misleading. If we are found to make false or misleading claims about our course offerings, we may be subject to fines or legal action from relevant government authorities in Hong Kong, which may materially and adversely affect our business and financial conditions.

Limited internet access and device access and limited English proficiency complicate the accessibility and coverage of our course offerings in Malaysia, which may materially and adversely affect our business and financial condition.

While internet penetration is increasing in Malaysia, there are still areas with limited access to devices such as computers and smartphones and with limited internet access, such as high-speed internet or technology infrastructure, which may impact the quality and reliability of our course offerings. The limited internet access and device access also affects the extent of digital literacy in Malaysia. There is still a significant portion of the population that is not familiar with technology or e-learning. As a result, we face challenges in delivering our course offerings to customers in these areas and at the same time need to invest in marketing and education initiatives to increase awareness and adoption of our course offerings. We may fail to expand our user base in Malaysia as expected, our users may not stick to our course offerings due to unfamiliarity of e-learning, and our investment may not generate returns such as an enlarged user base. In addition, while English is widely spoken in Malaysia, there is still a significant portion of the population that is not proficient in English. We may need to invest in localization and translation initiatives to increase our reach among non-English speakers, but there is no assurance that this investment would realize what we expect to achieve. Our efforts to overcome limited internet access, limited device access, low digital literacy and low English proficiency in Malaysia may not succeed, which may materially and adversely affect our business operations and financial condition.

We face fierce competition in Malaysia and there is no assurance that we may secure or continue to enlarge our market share in these countries.

In Malaysia, there is a high demand for exam preparation services, particularly for standardized tests such as the national pre-university examination. Therefore, companies that offer exam preparation services in Malaysia may have a competitive advantage in their respective market. In addition, the education market in Malaysia is highly competitive, with many companies offering similar products and services. We as a new entrant into the Malaysia’s education market face fierce competitions from existing market players and other new entrants. There is no assurance that we may be able to differentiate our course offerings from other competitors’ products and services or offer unique value. As a result, we may struggle to attract and retain users, which may materially and adversely affect our business operations and financial condition.

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If relevant Malaysian regulatory agency is to determine that a license is required for our local operations, our business, financial condition and results of operations could be adversely affected.

Pursuant to Section 86 of the 1996 Employment Act of Malaysia, Article 13 of the 1997 Education Act of Malaysia, local advertising laws and other laws and regulations, licenses may be required for local educational institutions in Malaysia. One of our subsidiaries, 51TALK TRAINING SDN. BHD, provides local sales, customer service and other ancillary services for our online courses in Malaysia. The Ministry of Education of Malaysia has notified us that the ministry has no clear requirements or guidance on whether private companies offering online education need to obtain relevant licenses for local educational institutions. However, we need to continue to observe the legislative trends of the Ministry of Education to determine whether we need to obtain the licenses, depending on the status of our employees, business activities and online education model in Malaysia. The issue of whether we need to obtain certain licenses will be subject to the policies and guidance adopted by the Malaysian government, including the Ministry of Education. If a Malaysian regulatory agency is to determine that a license is required for our local operations, there is no assurance that we will be able to obtain such licenses under the laws of Malaysia. If we are required to obtain such a license, the law of Malaysia requires that citizens of Malaysia need to hold at least 20% equity in our Malaysia subsidiary, which may adversely impact our complete control of our operations. Delay in or failure to obtain such licenses may materially and adversely affect our business, financial conditions and result of operations.

We may be unable to enforce certain of our contractual provisions within contracts between us and our customers in Malaysia under relevant local laws or directives of local governmental authorities.

We face risks as to the validity of certain contractual provisions within contracts between us and our Malaysian customers, as a result of which we may be unable to enforce such contractual provisions with customers in Malaysia. For instance, we use standard form contracts with our Malaysian customers, and we face certain risks as to the enforceability of contractual provisions within our contracts used in Malaysia, including, but not limited to, the choice of law, liquidate damages and refunds, and gift courses provisions. There remains uncertainty as to whether these contractual provisions are consistent and enforceable under the Consumer Protection Act or other laws and regulations of Malaysia. Additionally, Malaysian authorities and courts may deem our contractual provisions unfair under the Consumer Protection Act, resulting in voiding our contracts with Malaysian customers. Our business operations and financial condition may be materially and adversely affected if our Malaysian customers decides to file lawsuits against us on the validity and enforceability of such contractual provisions or if a Malaysia authority decides that these contractual provisions are unenforceable.

We are subject to Malaysian government regulations and other legal obligations related to advertising our business, the failure to comply with which may materially and adversely impact our business operations and financial condition.

Pursuant to the Advertising Practice Code and the Communications and Multimedia Act of Malaysia, online and offline advertising in Malaysia is subject to specific requirements such as cost labeling, website layout specifications and content localization. Our advertising materials, used across markets that we operate in, are subject to such laws and regulations and face scrutiny from consumer associations and relevant government authorities in Malaysia. We cannot assure that our advertising materials are always consistent with such specific requirements, which are changed from time to time, under Malaysian laws and regulations, or other requirements that may apply such as those on the portrayal of children and adolescents, religion, social behaviors and lifestyles in advertisements. There remains uncertainty on the regulatory standards for such content in online and offline advertising in Malaysia, which may render some of our advertising materials unsuitable for Malaysia. Our business operations and financial condition may be materially and adversely affected if we cannot carry out normal and consistent advertising activities in Malaysia.

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Our operations in the Middle East could be affected by economic and geopolitical conditions in the Middle East, and subject us to additional compliance costs.

Our operations in the Middle East expose us to increased political, operational and economic risks. There has been armed conflicts, political and social unrest and terrorist attacks in the Middle East, including violent protests and armed conflict in Syria and Yemen, and most recently the Hamas-Israel conflict and the attacks on shipping in the Red Sea. These events have caused significant disruption to the economies of the affected countries, and may materially impact our operations and financial position.

In addition, our operations in the Middle East may be subject us to additional compliance costs to comply with sanctions related regulations issued by the United States, which have established a SDN list of corporations and people with which engaging in business by a person subject to the jurisdiction of such government authority is prohibited without a license. There is no guarantee that any individual or entity in the Middle East or elsewhere with which we have done business will not be identified on the SDN list. If any customer, employee or vendor were to be listed on the SDN list, we will need to incur costs to seek legal advice to evaluate whether any further business may continue with such person or whether all business relationships with such person must cease.

Risks Related to Our ADSs

The trading prices of our ADSs have fluctuated and may be volatile, which could result in substantial losses to investors.

The market price and trading volume for our ADSs may be volatile and subject to wide fluctuations in response to factors including, but not limited to, the following:

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Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. In addition, the global financial crisis and the ensuing economic recessions in many countries have contributed and may continue to contribute to extreme volatility in the global stock markets. Moreover, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect operating performance. Volatility or a lack of positive performance in our ADS price may also adversely affect our ability to retain key employees, some of whom have been granted restricted share units under our share incentive plan.

There can be no assurance that we will not be a passive foreign investment company for U.S. federal income tax purposes for any taxable year, which could subject U.S. Holders of our ADSs or ordinary shares to significant adverse U.S. federal income tax consequences.

A non-United States corporation, such as our company, will be classified as a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income, or the asset test.

No assurances can be given with regard to our PFIC status for the taxable year ended December 31, 2023, or the current or any future taxable year because the determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the characterization and composition of our income, assets and liabilities. Additionally, fluctuations in the market price of our ADSs may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price of our ADSs from time to time (which may be volatile). In particular, recent declines in the market price of our ADSs significantly increased our risk of becoming a PFIC for the current taxable year. The market price of our ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status for any taxable year. Furthermore, the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passive income significantly increase relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

If we were to be or become classified as a PFIC in any taxable year, a U.S. Holder (as defined in “Taxation—United States Federal Income Taxation”) may incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of our ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distributions is treated as an “excess distribution” under the U.S. federal income tax rules. Further, if we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares. You are urged to consult your tax advisor concerning the U.S. federal income tax consequences of holding and disposing of ADSs if we are or become classified as a PFIC. For more information, see “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Considerations” and “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Rules.”

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If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

The trading market for our ADSs will be in part influenced by research reports and ratings that industry or securities analysts or ratings agencies publish about us, our business and the online education market in mainland China in general. As of the date of this annual report, there is no analyst coverage of our company. We do not have any control over these analysts or agencies as to whether they will cover us, whether such coverage will continue. If the analysts or agencies previously covered us who do not resume to cover us, or no new analysts or agencies begin to cover us, we may lose visibility in the financial markets, which could cause the market price or trading volume for our ADSs to decline.

Our dual class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share, with Class A and Class B ordinary shares voting together as one class on all matters subject to a shareholders’ vote. As of February 29, 2024, our Class B ordinary shares represent 30.0% of our total outstanding ordinary shares on an as-converted basis and entitle their holders to 81.1% of our total voting power.

As a result of the dual class share structure and the concentration of ownership, holders of our Class B ordinary shares have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial. For more information regarding our principal shareholders and their affiliated entities, see “Item 7. Major Shareholders and Related Party Transactions.”

The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. In addition, certain holders of our existing shareholders are entitled to certain registration rights, including demand registration rights, piggyback registration rights, and Form F-3 or Form S-3 registration rights. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the public market, or the perception that such sales could occur, could cause the price of our ADSs to decline.

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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act of the Cayman Islands (Revised), or the Companies Act, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, with respect to Cayman Islands companies, plaintiffs may face special obstacles, including but not limited to, those relating to jurisdiction and standing, in attempting to assert derivative claims in state or federal courts of the United States.

The Cayman Islands courts are also unlikely:

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

Judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and all of our assets are located outside of the United States. The majority of our current operations are conducted in Asia. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Specifically, Mr. Jack Jiajia Huang, Ms. Ting Shu and Mr. Xiaoguang Wu are located in Hong Kong and Cindy Chun Tang is located in mainland China. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of mainland China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

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The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A ordinary shares.

As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association, the minimum notice period required for convening a general meeting is ten clear days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE American. Press releases relating to financial results and material events are also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC are less extensive and less timely as compared to that required to be filed with the SEC by United States domestic issuers.

Furthermore, as a Cayman Islands company listed on the NYSE American, we are permitted to elect to rely, and have relied, on the home country exemptions afforded to foreign private issuers under NYSE American Company Guide, including:

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As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a United States domestic issuer.

You may not receive dividends or other distributions on our Class A ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class A ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

You may not be able to participate in rights offerings and may experience dilution of your holdings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

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ITEM 4.     INFORMATION ON THE COMPANY

51Talk Online Education Group began to provide English education services in July 2011 through Beijing Dasheng Zhixing Technology Co., Ltd., or Dasheng Zhixing, a mainland China domestic company, which became one of the former mainland China consolidated VIEs through a series of contractual arrangements. As a result of the contractual arrangements, 51Talk Online Education Group was considered the primary beneficiary of Dasheng Zhixing for accounting purposes and consolidated Dasheng Zhixing as required by Accounting Standards Codification topic 810, Consolidation.

In order to facilitate international capital raising of our company, we incorporated China Online Education Group, or 51Talk, to become our offshore holding company under the laws of the Cayman Islands in November 2012.

In October 2014, 51 Talk English International Limited, or COE HK Co, was incorporated with limited liability in Hong Kong. China Online Innovations Inc., or Philippines Co II, which was incorporated by us with limited liability in the Philippines to provides teaching service. Furthermore, we began to enter into employment agreements with office-based tutors and other full-time employees in the Philippines through Philippines Co II.

In January 2016, On Demand English Innovations Inc., or Philippines Co III, was incorporated by us with limited liability in the Philippines. Philippines Co III also entered into employment agreement with the free trial tutors and support staff.

On June 10, 2016, our ADSs began trading on the NYSE under the ticker symbol “COE.” We sold a total of 2,760,000 ADSs (reflecting the full exercise of the over-allotment option by the underwriters to purchase an additional 360,000 ADSs), representing 41,400,000 Class A ordinary shares, at an initial offering price of US$19.00 per ADS. Concurrently with our initial public offering, we also issued 11,842,105 and 3,947,368 Class A ordinary shares at a price of US$19.00 per share to DCM (through two affiliated entities) and Sequoia (through SCC Growth I Holdco A, Ltd.), respectively, through private placements.

In July 2018, Helloworld Online Education Group, or Helloworld Online Cayman, was incorporated under the Laws of the Cayman Islands as a wholly owned subsidiary of our company. In August 2018, Helloworld Online Education Group (HK) Limited, or Helloworld Online HK, was incorporated in Hong Kong as a wholly owned subsidiary of Helloworld Online Cayman. Beijing Helloworld Online Technology Co., Ltd., or Helloworld Online, was set up in September 2018 as a wholly owned subsidiary of Helloworld Online HK in mainland China.

On June 17, 2020, we completed a registered follow-on public offering, where we issued and sold 327,140 ADSs (including 27,140 ADSs sold from the exercise of over-allotment option) and certain selling shareholders sold 795,542 ADSs (including 95,542 ADSs sold from the exercise of over-allotment option), at a public offering price of US$19.00 per ADS. We received aggregate gross proceeds from the follow-on public offering of approximately US$6.2 million.

In August 2021, Mr. Caijian Jia subscribed certain increased registered capital of Dasheng Zhixing, representing 2.0000% of the total registered capital of Dasheng Zhixing. Since then, Dasheng Zhixing is 72.2750% owned by Mr. Jack Jiajia Huang, 25.7250% owned by Ms. Ting Shu, and 2.0000% owned by Mr. Caijian Jia.

In December 2021, Helloworld Online Education Pte. Ltd. was incorporated as a wholly owned subsidiary of our company to operate the international business in Singapore.

In April 2022, 51Talk Training SDN. BHD was incorporated as a wholly owned subsidiary of our company to operate the international business in Malaysia.

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In June 2022, we entered into a definitive share purchase agreement, dated June 24, 2022, with Dasheng Holding (HK) Limited, or Dasheng, an entity controlled by Mr. Jiajia Jack Huang, our chairman and chief executive officer, pursuant to which Mr. Jiajia Jack Huang, through Dasheng, acquired our China Mainland Business, i.e., all of our online English tutoring businesses in mainland China, including all associated liabilities and assets, for US$1. This transaction was completed on June 30, 2022. Thereafter, COE HK CO I and its subsidiaries, and the variable interest entities, which our Cayman Islands holding company was considered the primary beneficiary of for accounting purposes and consolidated as required by Accounting Standards Codification topic 810, Consolidation, such as Dasheng Zhixing and its subsidiaries and branches, Philippines Co I and Shenzhen Dasheng Zhiyun Technology Co., Ltd., were all divested from us. See “Item 4. Information on the Company—C. Organizational Structure” for further details.

In September 2022, Nanjing Helloworld Online Information Technology Co., Ltd was incorporated as a wholly owned subsidiary of our company to assist our international operations.

In September 2022, to keep pace of our international business strategy, we changed the name of our offshore holding company from China Online Education Group to 51Talk Online Education Group, which was approved by way of special resolution at our annual general meeting.

In November 2022, we terminated the contractual arrangements with Dasheng HelloWorld, and since then we no longer have any consolidated VIE in mainland China.

In December 2022, we changed the ratio of our American depositary shares, or ADSs, to Class A ordinary shares from one ADS representing fifteen Class A ordinary shares to one ADS representing sixty Class A ordinary shares. The intention of the ADS ratio change was to prepare our company for a contemplated transfer of the listing of our ADSs from the New York Stock Exchange to a listing venue that more fits our company’s size and stage.

In November 2022, Helloworld Education Online (Thailand) Co., Ltd. was incorporated as a subsidiary of our company to operate our business in Thailand. Helloworld Online Education Pte. Ltd holds 49% of the equity interest in Helloworld Education Online (Thailand) Co., Ltd., Ms. Suphaphon Thapmichai holds 26% and Mr. Chularak Aramruansakul holds 25% of the equity interest in Helloworld Education Online (Thailand) Co., Ltd. Helloworld Online Education Pte. Ltd holds ordinary shares, and each ordinary share is entitled to one vote. Ms. Suphaphon Thapmichai and Mr. Chularak Aramruansakul hold preference shares, and ten preference shares is entitled to one vote.

In May 2023, we transferred the listing of our ADSs from the New York Stock Exchange to NYSE American LLC, or the NYSE American.

Historically, we provided online tutoring services taught mainly by independently contracted foreign tutors to K-12 students in mainland China, which have been prohibited by the Alleviating Burden Opinion promulgated on July 24, 2021, and its implementation measures. Upon the consummation of the divestiture of the China Mainland Business at the end of June 2022, we ceased providing online tutoring services in China and concentrate on expanding international business. After the divestiture, our business is no longer directly affected by the Alleviating Burden Opinion and its implementation measures, and we began to focus on providing English education to foreign students outside of mainland China.

All information we file with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov.
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We are a tutor-centric online education platform, with core expertise in language education. Our mission is to make quality education accessible and affordable. Recognizing the strong demand for improving language proficiency and the lack of effective and affordable solutions, our founders started with English education as the first step of our journey, and further transitioned to English and Chinese education in an increasingly globalized environment. Jack, our founder and CEO, has a vision for an effective but affordable language education product.

English education and Chinese education as a second language traditionally focus on test preparation instead of improving English or Chinese proficiency, such as English and Chinese communication skills. To address this unmet need, we have developed proprietary online and mobile education platforms that enable students to take live interactive English and Chinese lessons, on demand, fostering the development of all aspects of English and Chinese proficiency.

We connect our students with a large pool of highly qualified English and Chinese tutors that we have assembled using a shared economy approach. Once our tutors have gone through our rigorous selection and training process, we assign them to classes with different schedules, considering their own scheduling availability, at appropriate locations of their choice. This shared economy approach has allowed us to quickly build a large pool of tutors in a cost-effective manner.

Prior to the second half of 2021, we focused primarily on offering one-on-one lessons to K-12 students in mainland China, connecting them with our pool of foreign tutors. In response to the regulatory developments in the private education sector in mainland China since mid-2021, we have now fully divested from the China Mainland Business and are completely focused on international markets by continuing to leverage our expertise in English education and our pool of English tutors. Our key business offering under our international business is one-on-one English lessons taught by English tutors to students in countries and regions outside of mainland China.

We started our international business in the second half of 2021 and currently provide English course offerings in Hong Kong, Malaysia, Thailand and certain other countries and regions. In these markets, we mainly conduct one-on-one online live English courses, targeting children aged five to 12. In Hong Kong, we offer our packages with a wide range of prices from US$506 to US$2,274. In Thailand, we offer our packages with a wide range of prices from US$220 to US$2,235, catering to the varied spending power of users. For Malaysia, our user base has expanded from local Chinese communities to other communities of Malaysia. In response to local users’ diverse consumption habits and culture, we have adjusted our course packages to the Malaysia market and mainly offer three-to-six-month course packages, which has amassed a large number of local English learners for our English course offerings.

We expect that in 2024, we will further deepen the penetration of our one-on-one online English lesson business in the countries and regions where we are currently operating as well as explore new markets. We will further upgrade and refine our English course offerings to better meet the demands of local users in terms of localized course content, payment channels and customer services. We strive to provide more English learners with the opportunity to communicate with the world through our platform.

We employ student and teacher feedback and data analytics to deliver a personalized learning experience. Our platform analyzes tutors’ teaching aptitudes, feedback and rating from students as well as background, and recommends suitable tutors to students according to their respective characteristics and learning objectives. The large pool of tutors not only allows us to accommodate and address students’ individual English proficiency level and learning behaviors and needs, but also ensures that we are able to afford students’ scheduling flexibility.

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We develop and tailor our proprietary curriculum specifically to our interactive lesson format and our goal of building an interactive and immersive English learning environment. We have designed a holistic learning solution that enhances effective learning through the integration of live lessons, practice and mentoring. Our live lessons allow for frequent interactions between students and tutors, which is a key factor in improving English communication skills. Prior to taking lessons, students preview course materials using exercises and illustrations, supported by a pronunciation recognition and rating system. Assessment includes post-lesson quizzes and level advancement exams, both of which help students better assess their learning outcome and identify areas for improvement. Our Classic English Junior and Classic English lesson offerings in countries and regions outside of mainland China focus on improving students’ English proficiency, especially English communication skills.

Our proprietary online and mobile education platforms, particularly our Air Class platform, are critical to students’ learning experience. The Air Class platform integrates a number of features that allows us to closely simulate, and in some ways surpass, a traditional classroom experience. Our 51Talk mobile app, which serves as an integral part of our students’ overall learning experience, allows students to book and manage lessons, access pre-lesson preparation and review materials, and take lessons at locations of their choice. Approximately 99.4% of our active students utilized our mobile app in 2023.

Our net revenues from international business increased from US$0.8 in 2021 to US$15.0 million in 2022, and further to US$27.1 million in 2023. Our gross billings from international business increased from US$3.5 in 2021 to US$28.7 million in 2022, and further to US$39.9 million in 2023. Such increase in our gross billings in 2023 is mainly because our focus on development of international business since the divestiture of the China Mainland Business. We define gross billings for a specific period as the total amount of cash received for the sale of course packages and services in such period, net of the total amount of refunds in such period. We incurred net loss from international business of US$4.2, US$12.8 million and US$15.0 million in 2021, 2022 and 2023, respectively.

The following table sets forth our key operating data of international business for the years indicated:

Notes:

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Learning Process

Our holistic learning process consists of four aspects: live lessons, effective practice, assessment and mentoring. Both one-on-one and small class programs comprise AI-empowered knowledge preview and AI-empowered post-lesson practices and assessment.

In order to recommend the proper course level that a new student should take, we first assess the student’s English proficiency, using a 11-level scale for K-12 students and a 16-level scale for post-secondary students. New students will answer a few questions online to assess their levels of proficiency in English.

Once a student is enrolled, he or she first picks the courses based on our recommendation. For one-on-one class, each student can select the timing for each lesson according to individual schedule. For our small class programs, at the time of enrollment, students will select a class with a fixed weekly schedule that fits in with their daily schedule. Once a lesson is scheduled, the student has access to AI-empowered knowledge preview lessons and self-study course materials. After each lesson, the student is encouraged to assess their learning outcome by taking the post-lesson quizzes.

Live lessons

One-on-one lessons with foreign tutors

We believe one-on-one live lessons foster the interactions between students and tutors as well as afford students tutors’ individual attention, which are key to an effective English learning experience. Each student has access to a large pool of qualified foreign tutors. Students have the flexibility to select tutors based on a wide range of attributes, including their rating and feedback from other students, as well as teaching aptitudes and characteristics. We also cross reference students’ English proficiency, learning progression, age group, profession, gender and platform engagement against certain traits of our teacher base to provide each student an individualized shortlist of most suitable tutors.

Lessons are typically 25 minutes long. Tutors and students interact using real-time audio and visual streaming technology. Our proprietary Air Class platform allows students to see the teacher and view the interactive white boards and course materials, on their desktop, laptop or mobile device. This makes the instructional process more efficient and the learning experience more interactive.

Our tutors provide instructions using our standardized curriculum. Within the framework of our standardized course materials, our one-on-one lesson format allows our tutors to adjust the pace of each lesson according to student performance and reaction, thus accommodating students across all learning curves.

In order to give students a consistent and seamless learning experience from different tutors, after each lesson tutors record in memos the strengths of the students, summaries of knowledge points and areas that need improvement and other information that would be helpful to tutors of future lessons. These memos allow subsequent tutors to be briefed on the student’s learning background and to continue to provide the student an adaptive and effective learning experience. Furthermore, these memos are also made available to students as a study tool.

A substantial majority of our foreign tutors are Filipino tutors.

Effective Practice

Students are required to preview course materials through the AI-empowered knowledge preview. Pre-lesson learning is particularly important, as such process allows students to engage in more productive interactions with tutors or other students during live lessons.

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Our AI-empowered knowledge preview aims to develop students’ English speaking, listening, reading and writing skills. It contains preview sessions of subsequent All-round Proficiency lessons, intriguing students’ curiosity to the following main lessons. Our AI-empowered knowledge preview also features audio functions that allow students to hear the correct pronunciation of key vocabulary words and model sentences. Students can record their pronunciation of individual words to be graded by our system. To build a more instinctive understanding of the English language for our students, our pre-lesson studying system relies on graphic illustrations to explain the meaning of vocabulary and phrases.

Tutors

Our teaching staff is critical to the quality of our programs and to promoting our brand and reputation. We have assembled a large pool of tutors in the Philippines. Our tutors deliver lessons based on their individual availability, at appropriate locations of their choice, and are paid according to the number of lessons they teach. Tutors who deliver paid lessons are generally engaged by us as independent contractors. As of December 31, 2023, we had approximately 4.1 thousand foreign tutors qualified to deliver lessons on our platform.

Teacher engagement

The individual skill sets and backgrounds of prospective tutors, combined with our rigorous selection and training program, have enabled us to build a team of passionate and patient tutors who are highly qualified to assist students in meeting their learning objectives.

We attract applicants through various online social media platforms and career websites and regularly participate in job fairs. We also reach out to prospective tutors through major job posting portals. Our tutors are attracted to our platform as it allows them to utilize their English skills to receive competitive service fees and gives them the opportunity to interact with students.

To ensure the quality of our tutors, we seek tutors capable of, and preferably experienced in, delivering effective instruction. Given the interactive nature of our live lessons, we seek to engage tutors who have a strong command of the English language and good communication skills.

Tutor training and development

Through the ongoing enhancement and refinement of our teaching methods and teacher training, our tutors are able to develop the skills necessary to more effectively communicate key learning points from our proprietary curriculum to our students. We believe that empowering our tutors with these skills is essential to maintaining our leading position as online and mobile education platforms and improving student experience and ensuring that our students receive quality education.

Our newly engaged tutors are generally required to undergo standard training programs that focus on our curriculum and teaching skills in a live lesson setting, as well as the specific learning behavior and objectives to a typical English-learning student. Our trainers also provide customized training based on a new teacher’s educational background and previous professional experience. New tutors also learn how to use our proprietary Air Class platform and how it can improve their teaching effectiveness. After completing our new teacher training program, the candidates will be assessed by our team of experienced evaluators before they are allowed to offer lessons on our platform.

To ensure our tutors continue to improve, we offer standardized training modules based on their progress and experience level on our platform. Our tutors are ranked according to a six-star scale and most of them begin their careers as one-star tutors. In order to advance through our system, tutors must maintain high student ratings and complete the training modules. Our training program is updated and customized based on changes to our curriculum and feedback from our quality assurance team and students. We also operate a quality assurance team to monitor teacher performance, review recordings of lessons based on random samplings and handle student complaints.

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We plan to maintain this level of commitment to our tutors as we expand our platform and develop our tutors’ capabilities through partnerships with training and certification bodies in the future.

Tutor evaluation and promotion

We collect student feedback on our tutors on a regular basis. Each teacher’s rating and student reviews are publicly available to students. Tutors with higher ratings and more favorable reviews tend to earn higher incomes as their teaching lessons are signed up by students more quickly.

We offer our tutors career advancement prospects with competitive service fees. The service fees of our tutors are based on student reviews, number of lessons taught and the completion of on-going training. Each advancement along the seven-star system results in a pay raise for each lesson taught. We also offer our tutors discretionary merit-based incentive bonuses, as well as opportunities for tutors who aspire to further their career in teacher training or course development based on their performance and capability.

Course Offerings

In addition to building general proficiency in listening, speaking, reading and writing skills, our proprietary course materials have a special emphasis on developing English communication and reading skills. Each of our courses for one-on-one lessons is broken down into a 25-minute session, and for small group lessons is broken down into two 25-minute sessions, both highly interactive and with clear learning objectives. The materials for our courses are designed for teaching settings that are conducted in live audio-visual lesson format.

We currently offer two flagship courses, namely Classic English Junior and Classic English. We complement our flagship offerings with AI-empowered knowledge preview and AI-empowered reading lessons.

Classic English Junior and Classic English

Classic English Junior is taught by foreign tutors and taken by K-12 students in countries and regions outside of mainland China. After the Alleviating Burden Opinion was released in July 2021, we stopped selling Classic English Junior course to K-12 students in mainland China. Classic English is taught by foreign tutors and taken by post-secondary students outside of mainland China. Our proprietary Classic English curriculum and course materials were developed under the guidance of the CEFR and are grouped into six general stages of English proficiency, splitting across a total of 16 levels. In addition to being guided by the CEFR, our proprietary Classic English Junior curriculum and course materials are developed under the further guidelines of the Content and Language Integrated Learning teaching method, and are split across 11 levels (from LS, L0 to L9) in aggregate.

Other Courses

In response to strong demand from local users, we also launched the “All-round Mandarin Chinese Course” for children aged four to 12 in Hong Kong, which caters to the local demand for learning Mandarin language skills.

Course Content Development

Team

We have dedicated course content development teams mainly based in Beijing, employing a total of seven professionals as of December 31, 2024. Our content development team members focus exclusively on developing, updating and improving our curriculum and course materials. We leverage the familiarity of our professionals in Beijing with the learning patterns of Chinese students to produce customized and high-quality course material for our students outside mainland China.

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Process

Our Classic English Junior and Classic English course materials and content for substantially all of our popular specialty courses are developed in-house.

We regularly and systematically update our existing curriculum to make them more effective and appealing to our students, and to adopt the latest English teaching methods. We also regularly engage in new course development in order to capture the demands created by evolving needs for English education. The feedback and market information we gather provide us with a wealth of resources for updating our existing course materials and developing new courses. For major updates to our flagship courses, we first pilot test the new versions for several months to assess student and teacher satisfaction. We then broadly release such new versions on our platform after we have incorporated the feedback.

We regularly release updates to our course materials. We will continue to launch new courses in the future to meet the varied interests and English learning needs of our young students and to realize greater cross-selling opportunities.

Online Education Platform

Proprietary Air Class platform

We developed our proprietary Air Class platform, which includes innovative features that closely simulate, and in some ways surpass, a traditional classroom learning experience, such as the interactive white board that allows tutors to highlight in real-time specific text phrases or important points to students. Our Air Class platform integrates high quality video and audio streaming features to create an interactive learning experience for our students. Each aspect of our holistic learning solution is available through our Air Class platform. The Air Class platform is available online and through our mobile app.

Mobile app

Our mobile platform is an integral part of our students’ overall learning experience. Through our mobile app, we enhance the learning experiences of our students with better flexibility and higher frequency of engagement. It allows students to book and manage lessons, access pre-lesson preparation and review materials and take lessons over their mobile devices. It also supports live lessons with features specifically designed for mobile devices. We continually upgrade and optimize our mobile app to improve our student experience. Approximately 99.4% of our active students accessed our mobile platform at least once in 2023. We offer our mobile app on both iOS and Android.

Students

In 2021, 2022 and 2023, we had 3.8 thousand, 26.4 thousand and 51.9 thousand active students with general lesson consumption from international business, respectively. An “active student with general lesson consumption” for a specified period refers to a student who booked at least one paid lesson, excluding those students who only attended paid live broadcasting lessons or trial lessons. A lesson is considered “booked” when it is taken or when the student to such lesson is confirmed absent.

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Student Services

We employ a service-oriented approach and devote significant resources to developing course-related support and services for our students.

Our technology support personnel are available during lesson hours to monitor and provide real-time support services to students encountering technical difficulties.

In addition to the student services described above, our general student service representatives counsel potential and existing students on our courses, assist in course-package purchases, handle student complaints and provide other support services. They are available online and by phone between 9:00 a.m. and 9:00 p.m., seven days a week. Our dedicated general student service team had seven individuals (including two full-time employees and five outsourced personnel) as of December 31, 2023. We engage student service personnel from candidates with good communication skills and student service ethics and provide on-the-job training for our new staffs. We conduct ongoing evaluations of our student service staff and provide periodic training to improve their skills.

Sales and Marketing

Since the release of the Alleviating Burden Opinion, we have ceased our branding and marketing activities in mainland China and now we only promote our new business offering in countries and regions outside of mainland China. As a result, we have revamped our marketing model for the international markets. We marketed our platform through a combination of online and offline channels. For the online channel, we use advertising via content platforms. For the offline channel, we use promotions as well as hosting joint activities with brands from other segments.

Our tele-marketing teams follow up on sales leads by providing additional information and support and trying to convince prospective students to enroll in our free trial lessons. Our course consultants then follow up with prospective students who have taken our free trial lessons and promote course packages most suited to each student’s background, proficiency and learning objectives. In addition, we engage in various branding activities to promote brand awareness among prospective students.

Branding

We are focused on promoting our 51Talk brand and to increase the overall effectiveness of our sales and marketing efforts. Our 51Talk brand represents our K-12 one-on-one program.

Channels

Online channels

We place online and mobile advertisements mainly on search engines and conduct marketing on leading social media platforms and web portals in countries and regions outside of mainland China. We also place banner advertisements on popular internet education platforms and apps, as well as mobile news apps. As part of our efforts to increase K-12 enrollment in countries and regions outside of mainland China, we also place advertisements on online parenting community portals and regional information flow in order to reach a broader audience of parents of prospective students there.

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Referrals

We have historically generated a significant percentage of our sales leads through word-of-mouth referrals by our students and parents. New enrollments through word-of-mouth referrals have benefited from the rapid growth in our student base, as well as our reputation, brand and the proven learning results of our students. We integrated social network functionalities into our mobile app and utilize social network platforms such as WeChat, Meta, Line, snapchat, WhatsApp, etc. to encourage post-secondary students to share their learning experience with their friends. We also promote our brand through referrals by our students and parents.

Offline channels

In certain countries and regions that we operate in, we place outdoor display advertisements in public including residential areas and transportation, as well as TV commercials.

Sales Process

The sales leads generated by our various marketing channels are initially handled by our tele-marketing teams. The primary function of our tele-marketing personnel is to encourage prospective students who have registered their information on our online and mobile platforms to sign-up for free trial lessons and to assist with the sign-up process.

We offer free trial lessons to prospective students. In addition to giving prospective students a preview of our interactive learning experience, we also use free trial lessons to assess the English proficiency of prospective students. A majority of our free trial lessons are delivered by our free trial tutors, who are our full-time employees. We have a highly selective process for free trial tutors. Free trial tutors must also participate in regular training programs. A significant portion of the training programs for free trial tutors concerns salesmanship and client communication.

Once prospective students have completed their trial lessons, our dedicated course consultants will offer feedback on the results of their English proficiency assessment, as well as introduce our holistic learning solution to prospective students. Based on this assessment and the data we had gathered from the student questionnaires, our course consultants recommend an appropriate starting level and provide advice as to the most appropriate course package and study plan for each prospective student. As of December 31, 2023, we had a total of 347 dedicated course consultants (including 86 full-time employees and 261 outsourced personnel).

After a student has purchased a course package, the student is assigned to an account manager who provides personalized and ongoing support services. Our account managers track the English proficiency progress as well as the lesson booking and participation status of each student. Our account managers also assist students with future lesson bookings and course selection to increase their activity level on our platform and regularly communicate with our students to solicit their feedback on our education program, such as teaching quality and learning experience. As of December 31, 2023, we had a total of 198 account managers (including 34 full-time employees and 164 outsourced personnel). Our account manager team plays a critical role in increasing the course package upgrades and renewals among our students.

Students who took free or paid short-duration trial lessons, but who did not book any paid lesson, are not counted as “active students with general lesson consumption.”

Fees

We offer the following payment plans for our students:

Prepaid credit Packages. We offer a variety of prepaid credit packages to international students. We have prepaid credit packages with minimum monthly consumption of eight to fifteen credits in different countries and regions to help international students build study habits. To offer our students more options and especially during promotional campaigns, we also offer different types of prepaid credit packages with various number of credits.

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We accept fee payments through bank transfer and major third-party online payment channels, including Airwallex, Stripe, Paypal, Atome, Payermax, Checkout and Ipay88. We offer fee refunds upon student request in accordance with the Alleviating Burden Opinion and other applicable regulations. As of December 31, 2023, we had no outstanding refunds to be made to students in mainland China.

Competition

The international online language education services market is generally fragmented, rapidly evolving and highly competitive. We face competition in general language proficiency education, as well as in K-12 and other specialized areas of language education, from existing online and offline companies. We face competition from other companies that provide online language education as well as from those that provide traditional offline language education abroad. We also face competition from other online and mobile platforms or internet companies that plan to expand their business into language education.

We believe that the principal competitive factors in our markets include the following:

We believe that we are well-positioned to effectively compete in the markets in which we operate on the basis of our innovative approach to online language education, immersive and interactive learning environment, scalable and efficient business model, extensive and high-quality teacher network, high course quality, strong course development capabilities and experienced management team. However, some of our current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical or marketing resources than we do. For a discussion of risks related to competition, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face significant competition, and if we fail to compete effectively, we may lose our market share or fail to gain additional market share, which would adversely impact our business and financial conditions and operating results.”

Seasonality

Seasonal fluctuations have affected, and may affect our business in the future. Seasonal fluctuations affected our business when we focused on lessons for K-12 students in mainland China, and may continue to affect our business as we shifted to new countries and regions. Due to our limited operating history and the fact that we just shifted our focus from lessons for Chinese K-12 students to new business models and service offerings, the seasonal trends that we have experienced in the past may not be indicative of our future operating results. Our financial condition and results of operations for future periods may continue to fluctuate. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our results of operations have been and may continue to be subject to seasonal fluctuations.”

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Insurance

We do not maintain any liability insurance or property insurance policies covering students, equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster, except for the liability insurance and property insurance policies for certain office in mainland China. We do not maintain business interruption insurance, nor do we maintain key-man life insurance. We maintain personal accident insurance for all employees after six months of employment in mainland China, maintain commercial medical insurance for our management and employees in mainland China and Malaysia, provide government-mandated medical insurance to all of our employees in the Philippines, mainland China and Thailand, and provide supplementary medical insurance to certain of our employees in the Philippines and mainland China. Uninsured injury or death to our staff, or damage to any of our equipment or buildings could have a material adverse effect on our results of operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We have limited insurance coverage for our operations in the countries and regions where we operate our business, which could expose us to significant costs and business disruption.”

Government Regulations

Philippine Regulations

This section sets forth a summary of the most significant rules and regulations that affect our business activities in the Philippines.

Regulations on Data Privacy

The Republic Act No. 10173, or the Data Privacy Act of 2012, its implementing rules and regulations, and the issuances of the National Privacy Commission govern the processing of all types of personal information. The Data Privacy Act of 2012 applies to any natural or juridical person involved in the personal information processing such as the personal information controllers and processors who, although not found or established in the Philippines, use equipment that are located in the Philippines, or those who maintain an office, branch or agency in the Philippines, subject to certain exceptions. The Data Privacy Act of 2012 expressly requires that before a personal information controller or processor can collate, process, and then use or share personal data, the personal information controller or processor must have a lawful criterion or basis for processing, such as consent (which is defined as any freely given, specific, informed indication of will, whereby the data subject agrees to the collection and processing of his or her personal data). Such entity must also register with the NPC and appoint a data protection officer.

The Data Privacy Act of 2012 and its implementing rules require personal information controllers and processors to have a data protection officer or compliance officer who shall be accountable for ensuring compliance with applicable laws and regulations for the protection of data privacy and security. Personal information controllers and processors must also (i) conduct a privacy impact assessment as part of the organizational security measures pursuant to NPC Advisory No. 2017-03, and (ii) register its personal data processing system if (a) it employs more than 250 persons, (b) it employs less than 250 persons but the processing undertaken is likely to pose a risk to the rights and freedoms of the data subject or is not occasional, or involves the processing of sensitive personal information of at least 1,000 individuals, pursuant to NPC Circular No. 17-01.

Personal information controllers and processors are also required to constitute a data breach response team and proper documentation under NPC Circular No. 2016-03.

Regulations on Cybersecurity

BSP Circular No. 808, Series of 2013 provides for the guidelines on technology risk management applicable to all BSP-supervised institutions and requires BSP supervised institutions to establish a robust technology risk management system covering the following components: (1) technology governance, (2) risk identification and assessment, (3) technology control implementation, and (4) risk measurement and monitoring.

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Regulations on Competition Law

The Philippine Competition Act is the primary competition policy of the Philippines. It came into effect on August 8, 2015, and was enacted to provide free and fair competition in trade, industry and all commercial economic activities. The Philippine Competition Act prohibits practices that restrict market competition through anti-competitive agreements or conduct and abuse of a dominant position, and requires parties to notify and obtain clearance for certain mergers and acquisitions. The Philippine Competition Act prescribes administrative fines of up to PHP275 million and criminal penalties of imprisonment up to seven years for violations of its provisions.

On September 11, 2020, the Bayanihan to Recover as One Act was passed which, among others, exempted all mergers and acquisitions with transaction values below PHP50 billion from compulsory notification under the Philippine Competition Act if entered into within a period of two years from the effectivity of Bayanihan 2 (i.e., until September 15, 2022). The thresholds before the enactment of the Bayanihan to Recover as One Act are PHP6 billion for the size of party test and PHP2.4 billion for the size of transaction test, which will be applicable to transactions entered after September 15, 2022 (subject to annual adjustment based on the gross domestic product of the Philippines).

The suspension power under the Bayanihan to Recover as One Act to review transaction motu proprio by the Philippine Competition Commission, including transactions that do not meet the thresholds for compulsory notification, expired on September 15, 2021. Thus, the PCC is now once again able to review transactions motu proprio. Particularly, the PCC has the power to review, motu proprio, mergers and acquisitions which it believes, based on reasonable grounds, are likely to substantially prevent, restrict or lessen competition in the market.

Starting September 16, 2022, mergers and acquisitions that reach a size of party of PHP6.1 billion and a size of transaction of PHP2.5 billion will have to be notified to the PCC for mandatory merger review.

Regulations on Employment

Independent Contractor

Contracting and subcontracting of work is allowed but is heavily regulated by the Philippine Labor Code and Department of Labor and Employment Department Order No. 174, series of 2017. There is legitimate contracting where the contractor (i) conducts an independent business; (ii) with adequate capital to do the job and pay its people; and (iii) exercises direct control over the performance of the workers. “Control” refers to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. On the other hand, the law prohibits labor-only contracting, which is where the person supplying workers to an employer does not have substantial capital or investment, and the workers recruited and placed by such contractor/subcontractor are performing activities which are directly related to the principal business of such employer, or when the contractor or subcontractor does not exercise the right to control over the performance of the work of the workers. In such cases, the contractor, subcontractor, or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

Regulations on Tax

On January 1, 1998, Republic Act No. 8424, otherwise known as the “National Internal Revenue Code,” or NIRC, took effect. Since NIRC came into effect, numerous laws have been passed to amend the various provisions within the NIRC.

On March 26, 2021, the Corporate Recovery and Tax Incentives for Enterprises was signed into law as Republic Act No. 11534 and took effect on 11 April 2021. Under this law, the corporate income tax rates for domestic and resident foreign corporations were reduced from 30% to 25%. However, for corporations with net taxable income of not more than five million Pesos and total assets not exceeding one hundred million Pesos, the tax rate shall be 20%.

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However, there are instances wherein corporations are not subject to the twenty-five (25%) corporate income tax rate for a certain amount of time. One example is entities registered with the Philippine Economic Zone Authority, or PEZA.

Under the CREATE law, such entities are entitled to fiscal incentives including income tax holiday or 100% exemption from corporate income tax for a period of four (4) to seven (7) years. After such time, the PEZA registered corporation shall enjoy a special corporate income tax rate of 5% on gross income earned in lieu of all national and local taxes, or enhanced deduction for five (5) to ten (10) years. PEZA entities will also enjoy tax and duty free importation of raw materials, capital equipment, machineries, spare parts or accessories.

The number of years an entity is entitled to the incentives is determined by the location of the entity and the type of business or activity it is engaged in.

Philippine Economic Zone Authority

The Philippine Economic Zone Authority, or the PEZA, is an attached agency to the Department of Trade and Industry. It is tasked to promote investments, extend assistance, register, grant incentives to, and facilitate the business operations of investors in export-oriented manufacturing and service facilities located inside selected areas throughout the Philippines which are proclaimed by the President of the Philippines as PEZA Special Economic Zones. The PEZA oversees and administers incentives to developers/operators and locators in PEZA Special Economic Zones.

On December 19, 2014, Philippines Co II was registered with the PEZA as an Ecozone IT Enterprise. As an IT Enterprise within the PEZA jurisdiction, seventy percent (70%) of the total revenues derived by Philippines Co II must come from clients outside the Philippine jurisdiction.

According to the CREATE law, those granted an income tax holiday prior to the effectivity of the law and are entitled to 5% tax on gross income earned shall be allowed to continue to avail of the five percent (5%) gross income earned incentive for ten (10) years while those availing of the five percent (5%) tax on gross income earned prior the effectivity of the law shall be allowed to continue availing the said incentive for ten (10) years. The said ten (10) year period is set to expire in 2024.

However, after such time, PEZA registered entities will be levied the same tax rate (i.e., 25% corporate income tax) as other Philippine corporations.

Singapore Regulations

Regulations on Data protection

Personal Data Protection Act 2012

The Personal Data Protection Act 2012 requires organizations to, among others, (a) notify individuals of the purposes for the collection, use and disclosure of their personal data (being data, whether true or not, about an individual who can be identified from that data or other accessible information) (b) obtain the individual’s consents against such notified purposes prior to the collection, use or disclosure of their personal data, and (c) provide individuals with the right to access and correct their own personal data. Organizations have mandatory obligations to assess data breaches they suffer, and to notify the Personal Data Protection Commission, which administers and enforces the Personal Data Protection Act 2012, and where applicable, the relevant individuals where the data breach is (or is likely to be) of a significant scale or resulting in (or is likely to result in) significant harm to individuals. Other obligations that organizations must comply with relate to accountability, protection, retention, and requirements around the international transfers of personal data.

In addition, Do-Not-Call requirements require organizations to, among others, check “Do-Not-Call” registries prior to sending specified marketing messages addressed to Singapore telephone numbers, through voice calls, fax or text messages, unless clear and unambiguous consent to the sending of the message to their number was obtained from the individual.

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The Personal Data Protection Commission may impose sanctions in connection with the improper collection, use and disclosure of personal data and certain failures to comply with the Personal Data Protection Act 2012, including the DNC requirements. Organizations who contravene provisions of the Personal Data Protection Act 2012 may be liable for a financial penalty of up to SGD1 million or 10% of the organization’s annual turnover in Singapore (where the organization’s annual turnover in Singapore exceeds SGD10 million) (whichever is higher) and/or imprisonment.

The Personal Data Protection Commission has also indicated that it will be issuing further guidelines in relation to children’s personal data. These guidelines will set out standards for social media services and companies whose products interface with children. While the Personal Data Protection Commission has conducted public consultation in relation to these guidelines, the exact contents of the guidelines are not publicly available at this juncture, and the Personal Data Protection Commission has not indicated when these guidelines will be issued.

Regulations on Online Content and Broadcasting

The Broadcasting Act 1994 of Singapore prohibits the provision of certain broadcasting services, including internet content, in or from Singapore without a license issued by the Infocomm Media Development Authority. The Infocomm Media Development Authority is the regulator of the information, communications and media sectors in Singapore. Under the Broadcasting Act 1994, no person may provide any ‘licensable broadcasting services’ (including computer on-line services) “in or from Singapore” without a broadcasting license granted by the Infocomm Media Development Authority. The Broadcasting Act 1994 sets out an automatic class licensing scheme for computer online services provided by internet content providers. An internet content provider includes a corporation which provides any program for business purposes on the internet. If the content provided via the computer online services includes content relating to political or religious content in Singapore, the provider of such content would have to register itself with the Infocomm Media Development Authority.

Internet content providers are in general mandated to be automatically class licensed without any need to make specific applications to the Infocomm Media Development Authority, and are required to comply with the conditions of the class license and the Internet Code of Practice. As an internet content provider, we are obliged to use our best efforts to ensure that prohibited material (which refers to material that is objectionable on the grounds of public interest, public morality, public security, national harmony, offends good taste or decency, or is otherwise prohibited by applicable Singapore laws) is not broadcast via the internet to users in Singapore, and we are also required to deny access to any prohibited material if directed to do so by the Infocomm Media Development Authority. Companies that contravene the class license conditions or the Internet Code of Practice may face administrative sanctions such as suspension or cancelation of license, or fines.

Under the Online Safety (Miscellaneous Amendments) Act, which came into effect on 1 February 2023, the Online Communication Services, or the OCS, accessible by Singapore users are subject to regulation under part 10A of the Broadcasting Act 1994. The OCS to which the Online Safety (Miscellaneous Amendments) Act applies to are set out in the fourth schedule to the Broadcasting Act 1994, which at present includes only social media services. Under the Online Safety (Miscellaneous Amendments) Act, the Infocomm Media Development Authority can, among other things, issue directions to disable access by Singapore users to egregious content found on OCSs. Egregious content includes content advocating or instructing on suicide or self-harm, physical or sexual violence and terrorism; content depicting child sexual exploitation; content posing public health risks in Singapore; and content likely to cause racial and religious disharmony in Singapore. The directions include (a) directions to an OCS provider to disable access by Singapore users to the egregious content on the service, (b) directions to an OCS provider to stop the delivery or communication of content to Singapore users, and (c) direction to an internet access service provider to block access by Singapore users to the non-compliant OCS if the OCS provider fails to comply with the directions of the Infocomm Media Development Authority. Under the Broadcasting Act 1994, OCS providers to whom a direction has been issued have a duty to take all reasonably practicable steps to comply with the direction, and non-compliance with a direction by the Infocomm Media Development Authority constitutes a criminal offense, punishable with a fine. The Infocomm Media Development Authority may also designate OCSs with significant reach or impact as Regulated Online Communication Services, or ROCS, and ROCS are required to further comply with the Code of Practice for Online Safety issued by the Infocomm Media Development Authority. To date, the Infocomm Media Development Authority has designated six OCSs as ROCS, and 51Talk has not been designated as a ROCS.

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Under the Online Criminal Harms Act 2023, parts of which came into force as of 1 February 2024, designated officers from various government agencies may issue directions in respect of online activity for criminal offenses under their agencies’ purview, if the designated officer reasonably suspects that an offense (specified in the first schedule of the Online Criminal Harms Act 2023) has been committed and that any online activity is in furtherance of the offense, or suspects or has reason to believe that any online activity is preparatory to, or in furtherance of the commission of a scam or malicious cyber activity offense. These directions include (a) directions to a person who has control of the relevant materials or location to remove, stop providing or disable access to the material, (b) directions to the provider of an online service to disable access to any relevant material (or copies thereof) or the location in the online service, and (c) directions to the provider of an online service to restrict interaction between any accounts on the online service. Under the Online Criminal Harms Act 2023, non-compliance with a direction may result in orders being issued, including for (a) the blocking of access to the location by an internet access service, (b) the removal of the app by an app distribution service, and (c) suspension or provision of the online service. Government agencies may also designate online services which are subject to codes of practice and implementation directives in respect of specified offenses, though this part of the Online Criminal Harms Act 2023 will only come into force at a later date.

In addition, to the extent that our platforms or services enable our users to transmit online content to each other or access third party online content, we would be an internet intermediary under the Protection from Online Falsehoods and Manipulation Act 2019 of Singapore. This act empowers any Singapore government minister to direct the responsible office to issue certain directions to internet intermediaries whose internet intermediary service had been used to communicate a false statement of fact in Singapore, if the minister is of the opinion that it would be in the public interest to do so. Such directions would include: (a) targeted correction directions, which require the internet intermediary to communicate a correction notice on its service to all end-users in Singapore who accessed the offending false statement of fact after a specified time; and (b) disabling directions, which require the internet intermediary to disable access by end-users in Singapore to the offending false statement of fact being communicated on or through its service. Companies may be fined if they fail to comply with directions issued under the Protection from Online Falsehoods and Manipulation Act 2019 of Singapore without reasonable excuse.

Under the Foreign Interference (Countermeasures) Act, the Singapore government is empowered to implement countermeasures to prevent, detect and disrupt foreign interference in domestic politics conducted through (i) hostile information campaigns and (ii) local proxies (politically significant persons). For example, this act empowers the Minister for Home Affairs to issue the directions to various entities such as social media services, relevant electronic services, internet access services, as well as persons who own or run websites, blogs or social media pages, to help the authorities investigate and counter hostile communications activity that is of foreign origin. Examples of directions that can be issued include directions for a communicator to take down their content, for an internet intermediary such as a social media service to take down their content, or suspend or disable the account, such that the content is not viewable by end-users in Singapore. Non-compliance with directions is an offense. Companies should be prepared to comply with such directions under Foreign Interference (Countermeasures) Act from a technical/operational perspective in relation to content carried on their online platforms.

Hong Kong Regulations

Regulations on Education

The Education Ordinance (Chapter 279 of the Laws of Hong Kong) sets out the requirements for schools and educational institutions in Hong Kong, including the curriculum, teacher qualifications, and student assessment. Companies that offer online courses or other educational services are required that their offerings meet the standards set out in the Education Ordinance. Companies may also need to obtain licenses or approvals from the Education Bureau or other authorities before offering their services. Companies that violate the regulations may be subject to fines and other penalties. For example, the Education Bureau may impose fines on companies that are found to be operating without the necessary licenses or approvals, or that are in violation of the curriculum or assessment requirements set out in the Education Ordinance.

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Regulations on Data Privacy and Cybersecurity

The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong), or the PDPO, regulates the collection, storage, use, and disclosure of personal data in Hong Kong. The PDPO came into effect in December 1996 and was later significantly amended in 2012 and 2021. The PDPO imposes a statutory duty on data users to comply with the requirements of the six data protection principles contained in Schedule 1 to the PDPO. The PDPO provides that a data user shall not do an act, or engage in a practice, that contravenes a data protection principle unless the act or practice, as the case may be, is required or permitted under the PDPO. Non-compliance with a data protection principle may lead to a complaint to the Privacy Commissioner for Personal Data. The Privacy Commissioner may serve an enforcement notice to direct the data user to remedy the contravention and/ or instigate prosecution actions. Non-compliance with the PDPO may lead to a variety of civil and criminal sanctions including fines and imprisonment.

The PDPO also gives data subjects certain rights. In particular, companies that collect personal data must obtain the consent of individuals before collecting their data, and must use that data only for the purposes for which it was collected. Companies must also take appropriate measures to protect the security of that data, including implementing data protection policies and procedures, and ensuring that data is stored securely. The PDPO also contains, among other things, restrictions on use of personal data in direct marketing activities, provisions relating to compliance with data access requests and restrictions on unauthorized disclosure of personal data obtained without the data user’s consent.

Regulations on Copyright

The Copyright Ordinance (Chapter 528 of the Laws of Hong Kong), which came into effect in June 1997, protects intellectual property rights in Hong Kong, including copyright and related rights. The Copyright (Amendment) Ordinance 2022, which was introduced with a view to modernize the Hong Kong copyright regime under the Copyright Ordinance, came into effect on 1 May 2023. Five key areas of changes are introduced under the new regulatory framework, including, among others, a technology-neutral communication right for copyright owners to communicate their works to the public via any mode of electronic transmission and criminal sanctions against infringers making unauthorized communication of copyright works to the public.

Regulations on Anti-discrimination

Hong Kong has various anti-discrimination laws, including the Sex Discrimination Ordinance (Chapter 480 of the Laws of Hong Kong), the Disability Discrimination Ordinance (Chapter 487 of the Laws of Hong Kong), the Family Status Discrimination Ordinance (Chapter 527 of the Laws of Hong Kong) and the Race Discrimination Ordinance (Chapter 602 of the Laws of Hong Kong), to prohibit discrimination against a person on the grounds of sex, marital status, pregnancy, disability, family status, and race. These ordinances are applicable in different areas, including employment, education, provision of goods, services, or facilities, and disposal or management of premises. Companies may be subject to anti-discrimination laws, if their course offerings discriminate against any particular group of individuals. For example, companies should ensure that online courses and materials are accessible to individuals with disabilities, and that their marketing materials do not contain discriminatory language or images.

Regulations on Consumer Protection

The main piece of legislation in Hong Kong is the Trade Descriptions Ordinance (Chapter 362 of the Laws of Hong Kong) (TDO) which prohibits false and misleading trade descriptions of goods, including in advertising. An amendment to the law came into force in July 2013 and extended the application of the TDO. It created new offenses relating to advertising, including (i) false trade descriptions relating to services, (ii) misleading omissions, and (iii) certain aggressive or unfair commercial practices.

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Malaysia Regulations

Regulations on Education

The Education Act sets out the regulations surrounding education in Malaysia, including requirements for licensing and accreditation of educational institutions. The Education Act also sets out the qualification requirements for tutors who offer courses or other educational services in Malaysia, including having the necessary degrees and certifications to teach their respective subjects. The Ministry of Education oversees the education system in Malaysia and has the power to regulate and enforce educational standards. Companies that provide courses or other educational services in Malaysia must also comply with the ministry’s regulations and requirements. Companies that offer courses or other educational services in Malaysia must obtain the necessary licenses and approvals from the Ministry of Education. Failure to obtain the necessary licenses can result in fines, legal action, or other penalties. Under the Education Act, companies that offer courses or other educational services without the necessary licenses and approvals may face fines of up to RM100,000 or imprisonment for a term not exceeding two years, or both. In addition, the Ministry of Education may take legal action to obtain an injunction to stop the company from operating.

The Malaysian Qualifications Agency is responsible for accreditation and quality assurance of educational institutions in Malaysia. Education technology companies that offer courses or other educational services must comply with the agency’s requirements for accreditation and quality assurance. Companies that offer courses or other educational services in Malaysia must comply with the accreditation requirements set out by the Malaysian Qualifications Agency, including ensuring that their courses meet the agency’s standards for quality and rigor.

Regulations on Personal Data Protection

The Personal Data Protection Act 2010 regulates the processing of personal data in the course of commercial transactions in Malaysia, and is enforced by the Personal Data Protection Commissioner. Broadly, the Personal Data Protection Act 2010 sets out key data protection principles which must be adhered to by data users (i.e., a person who either alone or jointly or in common with other persons processes any personal data or has control over or authorizes the processing of any personal data, but does not include a processor) in Malaysia, which include (i) the requirement to obtain consent prior to processing an individual’s personal data; (ii) the requirement to provide written notice to individuals in both English and the Malay language stating, among other things, the purposes for which the personal data will be processed, the classes of third parties to whom personal data will be disclosed, and the individual’s right of access; (iii) obligation to ensure that the personal data collected will be processed in a safe and secure manner; (iv) obligation to ensure that personal data processed will not be kept longer than is necessary, and (v) taking reasonable steps to ensure that personal data is accurate. The Personal Data Protection Standard 2015 further prescribes the minimum requirement for data security in processing personal data. Infringement of the Personal Data Protection act and Personal Data Protection Act 2013 may result in fines and imprisonment.

Regulations on Communications and Multimedia

The Communications and Multimedia Act regulates the use of the internet and digital content in Malaysia, including ensuring that their advertising is truthful and not misleading. Under the Communications and Multimedia Act, companies that operate online without the necessary licenses and approvals may face fines of up to RM500,000, imprisonment for a term not exceeding five years, or both. The Malaysian Communications and Multimedia Commission may also take legal action to require the company to cease operations or to block access to its website or content. In addition, companies that violate advertising regulations under the Communications and Multimedia Act may face fines of up to RM50,000, imprisonment for a term not exceeding one year, or both. The Malaysian Communications and Multimedia Commission may also take legal action to require the company to remove the misleading or deceptive advertisement.

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PRC Regulations

This section sets forth a summary of the most significant rules and regulations that affect our business activities in mainland China.

Regulations Relating to Intellectual Property Rights

Copyright and Software Registration

The NPC Standing Committee adopted the Copyright Law in 1990 and amended it in 2001, 2010 and 2020, respectively. According to the amended Copyright Law effective as of June 1, 2021, the definition of works has been revised that the expression of “cinematographic works and works created by methods similar to cinematographic production” has been amended to “audio-visual works,” which means that the scope of copyright protection has been further expanded. The amended Copyright Law has improved the provisions on the protection of internet copyright, especially by substantially increasing the upper limit of legal damages for infringement and clarifying the principle of punitive damages. To address the problem of copyright infringement related to the content posted or transmitted over the internet, the National Copyright Administration and the Ministry of Industry and Information Technology jointly promulgated the Measures for Administrative Protection of Copyright Related to Internet on April 29, 2005, which became effective on May 30, 2005.

In order to further implement the Computer Software Protection Regulations promulgated by the State Council on December 20, 2001, and amended on January 8, 2011, and January 30, 2013, the State Copyright Bureau issued the Computer Software Copyright Registration Procedures on February 20, 2002, which apply to software copyright registration, license contract registration and transfer contract registration. In compliance with, and in order to take advantage of the above rules, as of December 31, 2023, we registered five software copyrights in mainland China.

Patents

The NPC Standing Committee adopted the Patent Law of the People’s Republic of China in 1984 and amended it in 1992, 2000, 2008 and 2020, respectively. A patentable invention, utility model or design must meet three conditions: novelty, inventiveness and practical applicability. The Patent Office under the National Intellectual Property Administration is responsible for receiving, examining and approving patent applications. A patent is valid for a twenty-year term for an invention, a ten-year term for a utility model and a fifteen-year term for design, starting from the application date. Except under certain specific circumstances provided by law, any third party user must obtain consent or a proper license from the patent owner to use the patent, or else the use will constitute an infringement of the rights of the patent holder. As of December 31, 2023, we held 6 patents in mainland China.

Domain Name

In September 2002, the China Internet Network Information Center issued the Implementing Rules for Domain Name Registration setting forth detailed rules for registration of domain names, which was amended on May 29, 2012. On November 5, 2004, the Ministry of Industry and Information Technology promulgated the Measures for Administration of Domain Names for the Chinese Internet. The measures regulate the registration of domain names, such as the first tier domain name “.cn.” On August 24, 2017, the Ministry of Industry and Information Technology promulgated Administrative Measures for Internet Domain Names, repealing the Measures for Administration of Domain Names for the Chinese Internet since November 1, 2017. The efforts to undertake internet domain name services as well as the operation, maintenance, supervision and administration thereof and other relevant activities within the territory of mainland China shall thereafter be made in compliance with Administrative Measures for Internet Domain Names. On June 18, 2019, the China Internet Network Information Center issued the Measures on Resolution of Disputes over National Top-level Domain Names. Pursuant to these measures, the domain name disputes shall be accepted and solved by a domain name dispute resolution body as recognized by the center.

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Regulations on After-School Tutoring

On July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the Alleviating Burden Opinion, which provides that, among other things, (i) local government authorities shall no longer approve new after-school tutoring institutions providing tutoring services on academic subjects for students in compulsory education, or the Academic AST Institutions, and the existing after-school tutoring institutions providing tutoring services on academic subjects shall be registered as non-profit; (ii) online Academic AST Institutions that have filed with the local education administration authorities providing tutoring services on academic subjects shall be subject to review and re-approval procedures by competent government authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP license; (iii) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities; and (iv) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities.

Any violation of the foregoing shall be rectified. Moreover, the Alleviating Burden Opinion specifies a series of operating requirements that after-school tutoring institutions must meet, including, among other things, (i) after-school tutoring institutions shall not provide tutoring services on academic subjects during national holidays, weekends and school breaks; (ii) for online tutoring, each session shall be no more than thirty minutes and the training shall end no later than 9:00 p.m.; (iii) no advertisements for after-school tutoring shall be published or broadcasted in the network platforms and billboards displayed in the mainstream media, new media, public place and residential areas; (iv) the provision of international education courses is strictly prohibited; (v) fees charged for academic subjects tutoring in compulsory education shall be included into government-guided price management, and excessive high fees and excessive profit-seeking behaviors will be suppressed; (vi) government authorities will implement risk management and control for the pre-collection of fees by after-school tutoring institutions with requirements such as setting up third-party custodians and risk reserves, and strengthen supervision over loans regarding tutoring services; (vii) online tutoring for preschool-age children is prohibited, and offline academic subjects (including foreign language) tutoring services for preschool-age children is also strictly prohibited; (viii) no more approval of new after-school tutoring institutions providing tutoring services on academic subjects for pre-school-age children and students on grade ten to twelve will be granted; and (ix) administration and supervision over academic subjects tutoring institutions for students on grade ten to twelve shall be implemented by reference to the provisions of the Alleviating Burden Opinion.

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On March 14, 2023, the Ministry of Education together with four other government authorities issued the Interim Measures on Financial Management of After-School Tutoring Institutions to regulate the financial management of after-school tutoring institutions which provide after-school tutoring services for pre-school children aged 3 to 6 and students in compulsory education and high schools. The interim measures clarify that the funds of after-school tutoring institutions shall be supervised in the whole process of budget management, revenue management, supervision of pre-collected fees and fund use. In particular, the interim measures provide that (i) listed companies shall not found or participate in founding after-school tutoring institutions which provide academic after-school tutoring services for students in compulsory education and shall not purchase assets of academic after-school tutoring institutions by means of issuing shares or paying cash; (ii) after-school tutoring institutions which provide academic after-school tutoring services for students in compulsory education shall not be controlled or invested by foreign entities including through merger and acquisition, and contractual arrangements, (iii) sponsors of non-profit after-school tutoring institutions shall not receive dividends, returns or remaining assets from such institutions.

On August 23, 2023, the Ministry of Education issued Interim Measures for Administrative Penalties on Off-campus Tutoring which become effective on October 15, 2023. The interim measures set out the general requirements for administrative penalties for illegal off-campus tutoring operated by any natural person, legal person or other organization that is offered to pre-school children over three years of age, and primary and secondary school students. The interim measures provide that the following circumstances shall constitute illegal off-campus tutoring, and relevant natural person, legal person or other organization conducting such illegal off-campus tutoring may be subject to various administrative penalties, such as orders to rectify or cease tutoring activities, returning fees charged, revocation of operation approval, warning, criticism and fines: (i) any natural person, legal person or other organization carries out after-school tutoring without requisite private school operating permit and meets certain conditions, including having a specific tutoring facility for offline tutoring activities or a specific website or application for online tutoring activities, two or more tutoring personnel and corresponding organizational structure and division of work; (ii) any natural person, legal person or other organization carries out certain after-school academic tutoring activities in a disguised form without meeting the conditions as prescribed above but also without a private school operating permit; (iii) any after-school tutoring institution carries out after-school tutoring beyond the scope of its private school operating permit; (iv) any after-school tutoring institution carries out after-school tutoring in violation of applicable laws and regulations; (v) any after-school tutoring institution has the problem of disorganized management; and (vi) any after-school tutoring institution organizes or participates in the organization of social competitions without approval for preschool children over three years of age, and primary and secondary school students.

Regulations Relating to Foreign Investment

On March 15, 2019, the National People’s Congress adopted the Foreign Investment Law of the PRC, which became effective on January 1, 2020. The Regulations on Implementing the Foreign Investment Law of the PRC adopted by the State Council on December 12, 2019, which came into effect on January 1, 2020, provides implementing measures and detailed rules to ensure the effective implementation of the Foreign Investment Law of the PRC. Pursuant to the Foreign Investment Law of the PRC, “foreign investors” means natural person, enterprise, or other organization of a foreign country, “foreign-invested enterprises” means any enterprise established under PRC law that is wholly or partially invested by foreign investors and “foreign investment” means any foreign investor’s direct or indirect investment in Mainland China, including: (i) establishing foreign-invested enterprises in Mainland China either individually or jointly with other investors; (ii) obtaining stock shares, stock equity, property shares, other similar interests in Chinese domestic enterprises; (iii) investing in new projects in Mainland China either individually or jointly with other investors; and (iv) making investment through other means provided by laws, administrative regulations, or State Council provisions.

On December 30, 2019, the Ministry of Commerce and the State Administration of Market Regulation issued the Measures for the Reporting of Foreign Investment Information, which came into effect on January 1, 2020, and replaced the Interim Administrative Measures. Since January 1, 2020, for foreign investors carrying out investment activities directly or indirectly in China, the foreign investors or foreign-invested enterprises shall submit investment information to the commerce authorities pursuant to the abovementioned measures. Pursuant to the Measures for the Security Review of Foreign Investment, which was promulgated by the National Development and Reform Commission and the Ministry of Commerce on December 19, 2020, and became effective on January 18, 2021, the office of the working mechanism for the security review of foreign investments is set up under the National Development and Reform Commission, which is led by the National Development and Reform Commission and the Ministry of Commerce to undertake the routine work of the security review of foreign investments.

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The Foreign Investment Law of the PRC is considered to grant national treatment to foreign-invested enterprises, except that foreign-invested enterprises are subject to certain restrictions or prohibitions if they propose to operate in certain industries prescribed on the Special Administrative Measures for Access of Foreign Investment (Negative List) (2021 version). The Foreign Investment Law of PRC establishes the administration systems for foreign investment, which mainly consists of pre-establishment national treatment plus the negative list, foreign investment information report system and security review system. The said systems, together with other administration measures stipulated under the Foreign Investment Law, constitute the frame of foreign investment administration. The pre-establishment national treatment refers to granting foreign investors and their investments, in the stage of investment access, the treatment no less favorable than that granted to domestic investors and their investments; the negative list refers to special administrative measures for access of foreign investments in certain fields and the national treatment will be given to the foreign investments that do not fall within any of the categories set out in the negative list.

On December 27, 2021, the Ministry of Commerce and the National Development and Reform Commission jointly promulgated the Special Administrative Measures for Access of Foreign Investment (Negative List) (2021 version), which became effective on January 1, 2022. Under these measures, pre-school education, senior high school education in grades 10 to 12, and higher education are in a restricted industry, meaning foreign educational organizations with relevant qualifications and experience and Chinese educational organizations are only allowed to operate pre-school education, senior high schools and higher education in cooperative ways by the form of a cooperative joint venture in the PRC. Foreign investment is banned from compulsory education, which means grades 1 to 9. Foreign investment is allowed in after-school tutoring services and training services which do not grant certificates or diplomas and non-academic vocational training institutions.

Regulations on Foreign Exchange

Foreign Currency Exchange

Pursuant to the Foreign Currency Administration Rules, as amended, and various regulations issued by the State Administration of Foreign Exchange, or the SAFE, on August 5, 2008, and other relevant PRC government authorities, RMB is freely convertible to the extent of current account items, such as trade related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, unless expressly exempted by laws and regulations, still require prior approval from SAFE or its provincial branch for conversion of RMB into a foreign currency, such as U.S. dollars, and remittance of the foreign currency outside of mainland China. Payments for transactions that take place within mainland China must be made in RMB. Foreign currency revenues received by mainland China companies may be repatriated into mainland China or retained outside of mainland China in accordance with requirements and terms specified by SAFE.

Regulations Relating to Foreign Exchange Registration of Overseas Investment by Mainland China Residents

The Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, issued by SAFE taking effect on July 4, 2014, regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by mainland China residents or entities to seek offshore investment and financing and conduct round trip investment in mainland China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by mainland China residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in mainland China by mainland China residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 requires that, before making contribution into an SPV, mainland China residents or entities are required to complete foreign exchange registration with the SAFE or its local branch. SAFE Circular 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch.

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Mainland China residents or entities who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before the implementation of the SAFE Circular 37 shall register their ownership interests or control in such SPVs with SAFE or its local branch. An amendment to the registration is required if there is a material change in the SPV registered, such as any change of basic information (including change of such mainland China residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant mainland China residents or entities to penalties under PRC foreign exchange administration regulations. On February 13, 2015, SAFE further promulgated the Circular on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. This SAFE Circular 13 has amended SAFE Circular 37 by requiring mainland China residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. Jack Jiajia Huang and Ting Shu, who directly or indirectly hold shares in our Cayman Islands holding company and who are mainland China residents have completed the initial foreign exchange registrations and amended their registrations to reflect our corporate restructuring in November 2014, but have not updated their registrations required in connection with our recent corporate restructuring.

Regulations on Stock Incentive Plans

Pursuant to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, or SAFE Circular 7, issued by SAFE in February 2012, employees, directors, supervisors and other senior management participating in any stock incentive plan of an overseas publicly listed company who are mainland China citizens or who are non-mainland China citizens residing in mainland China for a continuous period of not less than one year, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be a mainland China subsidiaries of such overseas listed company, and complete certain other procedures. Failure to complete the SAFE registrations may lead to fines and legal sanctions and may also limit a company’s ability to contribute additional capital into its wholly foreign-owned subsidiary in mainland China.

In addition, the State Administration for Taxation has issued certain circulars concerning employee share options or restricted shares. Under these circulars, the employees working in mainland China who exercise share options or are granted restricted shares will be subject to individual income tax in mainland China. The mainland China subsidiaries of such overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If the employees fail to pay or the mainland China subsidiaries fail to withhold their income taxes according to relevant laws and regulations, the mainland China subsidiaries may face sanctions imposed by the tax authorities or other mainland China government authorities.

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Regulations Relating to Employment and Social Insurance

The PRC Labor Law effective as of January 1, 1995 (as latest amended on December 29, 2018), and the PRC Labor Contract Law effective as of January 1, 2008 (as amended on December 28, 2012), set forth a series of provisions governing the labor relationship between employees and employers. The requirements include, among others, (i) a written labor contract shall be executed by an employer and an employee when the employment relationship is established, and an employer is under an obligation to sign an unlimited-term labor contract with any employee who has worked for the employer for ten consecutive years; (ii) if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must have an unlimited term, with certain exceptions. The employer must also pay severance to an employee in nearly all instances where a labor contract, including a contract with an unlimited term, is terminated or expires; and (iii) All employers must compensate their employees equal to at least the local minimum wage standards. In addition, the government has continued to introduce various new labor-related regulations after the Labor Contract Law. Among other things, new annual leave requirements mandate that annual leave to be available for nearly all employees and further require that the employer compensate an employee for any annual leave days the employee is unable to take in the amount of three times his daily salary, subject to certain exceptions. Moreover, all mainland China enterprises are generally required to implement a standard working time system of eight hours a day and forty hours a week, and if the implementation of such standard working time system is not appropriate due to the nature of the job or the characteristics of business operation, the enterprise may implement a flexible working time system or comprehensive working time system after obtaining approvals from the authorities. In addition, employers in mainland China are obliged to pay contributions to the social insurance plan and the housing fund plan for their employees, and such contribution amount payable shall be calculated based on the employee actual salary in accordance with the applicable regulations.

Regulations Relating to Overseas Listing and M&A Rules

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, were jointly adopted by six PRC regulatory authorities, including China Securities Regulatory Commission, or CSRC, on August 8, 2006, and became effective as of September 8, 2006, and were later amended on June 22, 2009. This M&A Rules purports to require, among other things, offshore SPVs, formed for listing purposes through acquisition of mainland China domestic companies and controlled by mainland China companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. We believe that CSRC approval is not required in the context of our initial public offering as we are not a special purpose vehicle formed for listing purpose through acquisition of domestic companies that are controlled by our mainland China individual shareholders.

The new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic companies released on February 17, 2023, or New Filing Rules, establish a new filing-based regime to regulate overseas offerings and listings by domestic companies. The New Filing Rules consist of six sets of rules, including the Trial Measure for Administration of the Overseas Securities Offerings and Listings by Domestic Enterprises. According to the New Filing Rules, (i) an overseas offering and listing by a domestic company, whether directly or indirectly, shall be filed with the CSRC; and (ii) the issuer or its affiliated domestic company, as the case may be, shall file with the CSRC for its initial public offering, follow-on offering and other equivalent offing activities. The New Filing Rules also set forth certain regulatory red lines for overseas offerings and listings by domestic enterprises. However, from March 31, 2023, enterprises that have been listed overseas shall constitute existing enterprises and are not required to conduct the overseas listing filing procedure immediately, but shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC.

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On February 24, 2023, the CSRC, together with the Ministry of Finance, the National Administration of State Secrets Protection and the National Archives Administration of China, issued the Provisions on Strengthening Confidentiality and Archives Administration of International Securities Offering and Listing by Domestic Companies, or the Archives Rules, which came into effect on March 31, 2023. The Archives Rules reiterate that working papers produced in the PRC by securities companies and securities service providers for direct and indirect international offering and listing by domestic companies, should be retained in mainland China, and, without prior approval by competent authorities of mainland China, such working papers shall not be brought, mailed or otherwise transferred to recipients outside of mainland China. Furthermore, the Archives Rules establish a cross-border regulatory cooperation mechanism as prescribed in the PRC Securities Law and strengthen cross-border regulatory cooperation as prescribed in the New Filing Rules, which shifts the overall direction of cross-border supervision of international offering and listing from a “dominated by domestic regulators or depend on the conclusions of inspections by domestic regulators” approach to a “cross-border regulatory cooperation” mechanism.

The Archives Rules provide that, among other things, (i) in relation to the international offering and listing activities of domestic enterprises, the domestic enterprises are required to strictly comply with the requirements on confidentiality and archives management, establish a sound confidentiality and archives system, and take necessary measures to implement their confidentiality and archives management responsibilities; (ii) during the course of an international offering and listing, if a domestic enterprise needs to publicly disclose or provide to securities companies, accounting firms or other securities service providers and international regulators, any materials that contain relevant state secrets, work secrets of government agencies or that have a sensitive impact (i.e., be detrimental to national security or the public interest if divulged), the domestic enterprise should complete the approval/filing and other regulatory procedures; and (iii) working papers produced in mainland China by securities companies and securities service institutions, which provide domestic enterprises with securities services during their international issuance and listing, should be stored in mainland China, and the transmission of all such working papers to recipients outside of mainland China is required to be approved by competent authorities of mainland China.

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The following diagram illustrates our current corporate structure, which includes our significant subsidiaries and consolidated affiliated entities as of the date of this annual report:

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Notes:

⁎ The holding company in which the investors hold their interests

+ Our operating subsidiaries

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Historically, as we were the primary beneficiary of the former mainland China consolidated VIEs for accounting purposes, we conducted part of our business in mainland China through the former mainland China consolidated VIEs. In 2022, all of the former mainland China consolidated VIEs were divested along with the China Mainland Business or subsequently dissolved. As of the date of this annual report, we do not have any variable interest entity in mainland China nor maintain any contractual arrangement between our mainland China subsidiaries and our offshore subsidiaries or 51Talk Online Education Group that could affect the manner in which we operate or impact our ability to control our subsidiaries.

Contractual Arrangement with Our Subsidiaries in the Philippines and Its Shareholders

Under the Philippine Corporation Code, the business, assets and affairs of a corporation are handled and managed by a board of directors, which is composed of the number of individuals mandated under the corporation’s articles of incorporation. Philippine law further requires that each director own at least one share of stock in his or her name in the books of the corporation. In order to comply with the foregoing, there are seven individual shareholders of Philippines Co II and five individual shareholders of Philippines Co III, holding an aggregate of 0.000007% and 0.001% of the equity interest of Philippines Co II and Philippines Co III, respectively. We have entered into (i) contracts with Philippines Co II, and some of the shareholders of Philippines Co II, i.e., Huiru Yuan, Jennifer Que, Samuel Celestino, Xing Liu and Wei Li, which we refer to as the signing shareholders of Philippines Co II; and (ii) contracts with Philippines Co III and one shareholder of Philippines Co III, Frank Lin, which we refer to as the signing shareholder of Philippines Co III.

51Talk, Philippines Co II and the signing shareholders of Philippines Co II entered into exclusive option agreements on August 31, 2015. Under the exclusive option agreements by and among Philippines Co II, each of the signing shareholders of Philippines Co II and 51Talk, in consideration of the payment of US$1.0 by 51Talk, each of the signing shareholders irrevocably granted 51Talk a binding and exclusive right to purchase or designate one or more persons to purchase, equity interests in Philippines Co II then held by each shareholder at once or at multiple times at any time in part or in whole at 51Talk’s sole and absolute discretion to the extent permitted by Philippine laws and at the price of US$1.0. Without 51Talk’s prior written consent, Philippines Co II’s signing shareholders shall not sell, transfer, mortgage, or otherwise dispose in any manner any material assets of Philippines Co II or legal or beneficial interest in the material business or revenues of Philippines Co II in an amount exceeding US$100,000, or allow the encumbrance thereon of any security interests; or cause Philippines Co II to execute any contract with a price exceeding US$100,000, except the contracts in the ordinary course of business. Unless otherwise required by Philippine laws, Philippines Co II shall not be dissolved or liquidated without prior written consent by 51Talk. The signing shareholders of Philippines Co II waive their rights of first refusal in regard to the transfer of equity interest by any other shareholder of Philippines Co II to 51Talk (if any), give consents to the execution by each other shareholder of Philippines Co II with 51Talk and Philippines Co II the exclusive option agreements, the equity interest pledge agreements and the powers of attorney, and accept not to take any actions in conflict with such documents executed by other shareholders. The signing shareholders of Philippines Co II agree to promptly donate any profits, interests, dividends, or proceeds of liquidation to 51Talk or any other person designated by 51Talk to the extent permitted under the applicable Philippine laws. These agreements shall remain in effect until all equity interests in Philippines Co II held by the signing shareholders have been transferred or assigned to 51Talk and/or any other person designed by 51Talk in accordance with this agreement. The signing shareholders of Philippines Co II and Philippines Co II do not have any right to terminate the exclusive option agreements in any event unless otherwise required by the applicable laws.

51Talk, Philippines Co III and the signing shareholder of Philippines Co III entered into exclusive option agreements on February 1, 2016. Such exclusive option agreements contain terms substantially similar to the exclusive option agreements described above.

In the opinion of our Philippines counsel, Sapalo Velez Bundang & Bulilan, the contractual arrangements in respect of Philippines Co II and Philippines Co III are valid, binding and enforceable under current laws of the Philippines.

We maintain offices in Pasig City, Philippines, Hong Kong, Kuala Lumpur, Malaysia and other places outside mainland China with an aggregate of 2,853 square meters. These facilities accommodate part of our sales and marketing and general and administrative activities. We also maintain offices in mainland China with an aggregate of 1,989 square meters accommodating part of our product development and general and administrative activities.

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We lease all of the facilities that we currently occupy from independent third parties.

We believe that the facilities that we currently lease are adequate to meet our needs for the foreseeable future, and we believe that we will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansion plans.

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ITEM 4.A.     UNRESOLVED STAFF COMMENTS

Not Applicable.

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ITEM 5.        OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report on Form 20-F. This report contains forward-looking statements. See “Forward-Looking Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report on Form 20-F. All the operational risks associated with having operations in mainland China also apply to operations in Hong Kong. With respect to the legal risks associated with having operations in mainland China, the laws, regulations and the discretion of mainland China governmental authorities discussed in this annual report are expected to apply to mainland China entities and operations, rather than entities or operations in Hong Kong which operate under a different set of laws from mainland China. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

Overview

We are a global online education platform with core expertise in English education. Our mission is to make quality education accessible and affordable. Recognizing the strong demand for improving English proficiency and the lack of effective and affordable solutions, our founders started with English education as the first step of our journey.

Prior to the second half of 2021, we focused primarily on offering one-on-one lessons to K-12 students and post-secondary students in mainland China, connecting them with our pool of foreign tutors. In response to the regulatory developments in the private education sector in mainland China since mid-2021, we have stopped selling lessons taught by foreign tutors to K-12 students in mainland China and have developed and transitioned into new service offerings that continue to leverage our expertise in English education and our pool of English tutors. Our new business offerings focus on one-on-one English lessons taught by foreign tutors to students in countries and regions outside of mainland China. Our historical operational and financial data is not indicative of future operational and financial performances, particularly due to the transition described above.

Historically, a significant majority of our revenue was generated from our China Mainland Business, which was operated by the subsidiaries and variable interest entities controlled by China Online Education (HK) limited, which was in turn our wholly owned subsidiary before June 30, 2022. We entered into a definitive share purchase agreement, dated June 24, 2022, with Dasheng Holding (HK) Limited, an entity controlled by Mr. Jiajia Jack Huang, our chairman of the board of directors and chief executive officer, pursuant to which Mr. Jiajia Jack Huang, through Dasheng, acquired all of our company’s online English tutoring businesses in mainland China, including all associated liabilities and assets, for US$1. On June 30, 2022, we completed the divestiture of the China Mainland Business. After the divestiture, our company focuses on providing online English tutoring lessons taught by foreign tutors to K-12 and post-secondary students in countries and regions outside of mainland China, meanwhile, China Online Education (HK) limited and its subsidiaries ceased to be our subsidiaries and the variable interest entities in mainland China were divested along with such divestiture or subsequently dissolved.

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Effective January 1, 2022, we elected to change our reporting currency from RMB to USD. The functional currency of our company and our subsidiaries incorporated in the Cayman Islands, Hong Kong and Singapore is United States dollars, the functional currency of the Philippines entities is Peso, the functional currency of the Thailand entity is Thai Baht, the functional currency of Japan is Yen and the functional currency of the Malaysia entities is Ringgit. The functional currency of the mainland China entities in our company is RMB. In the consolidated financial statements, the entities located in mainland China, the Philippines, Malaysia, Thailand and Japan have been translated into USD. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average of exchange rates during their respective reporting period.

Our net revenues increased from US$0.8 million in 2021 to US$15.0 million in 2022, and further to US$27.1 million in 2023. Our gross billings increased from US$3.5 million in 2021 to US$28.7 million in 2022, and further to US$39.9 million in 2023. We define gross billings for a specific period as the total amount of cash received and receivable from third party payment platforms for the sale of course packages and services in such period, net of the total amount of refunds in such period. Our net losses from continuing operations in 2021 and 2022 was US$4.2 million and US$12.8 million, respectively and our net losses in 2023 was US$15.0 million.

Change in Segment Reporting

Upon the divestiture of the China Mainland Business on June 30, 2022, the chief operating decision maker no longer reviews the China Mainland Business, as a result, we reevaluated our segments and now have classified the China Mainland Business as discontinued operations. As of December 31, 2022 and 2023, we had only one reportable segment, namely the international business segment.

Selected Income Statement Items

Net Revenues

In 2021, 2022 and 2023, we generated net revenues from continuing operations of US$0.8 million, US$15.0 million and US$27.1 million, respectively. We generally collect fees in advance, which we initially record as advances from students. We mainly offer prepaid credit packages with minimum monthly consumption for our students to purchase. For prepaid credit packages, fees for lessons that have expired are automatically recognized as revenues. We had advances from students from international business of US$2.9 million, US$15.2 million and US$27.2 million as of December 31, 2021, 2022 and 2023, respectively. Our net revenues are presented net of value-added tax.

Cost of Revenues

Our cost of revenues primarily consists of service fees to our tutors who delivered paid lessons, the amortization cost of licenses, the cost of printing the textbook and, to a lesser extent, payment processing fees charged by third party payment channels. We recorded cost of revenues from continuing operations of US$0.1 million, US$3.2 million and US$6.3 million in 2021, 2022 and 2023, respectively.

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Operating Expenses

Our operating expenses from continuing operations consist of sales and marketing expenses and general and administrative expenses, and to a lesser extent, product development expenses and goodwill and intangibles impairment. The following table sets forth, for the years indicated, our operating expenses, in absolute amounts and as percentages of total net revenues:

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Our sales and marketing expenses primarily consist of online and mobile marketing expenses, branding expenses, free trial lesson-related expenses.

Our general and administrative expenses primarily consist of payroll and employee benefits to our management and administrative personnel. Our general and administrative expenses also include rental and utilities expenses relating to office and administrative functions as well as professional service fees.

Our product development expenses primarily consist of payroll and employee benefits to our personnel involved in course content development, as well as to our employees involved in the research and development of technology for our online and mobile platforms.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

Singapore

Our wholly owned subsidiary in Singapore, HelloWorld Online Education Pte. Ltd., is subject to 17% Singapore corporate income tax on its taxable income generated from operations in Singapore for the year 2023. In 2023, HelloWorld Online Education Pte. Ltd. is in a loss position, hence no taxable profit was reported during such period.

Malaysia

Our subsidiary in Malaysia, 51TALK TRAINING SDN. BHD was incorporated in April 2022. The taxable income generated by the company should be subjected to 15% for the first MYR150 taxable income, 17% on the next MYR450, and 24% thereafter.

Thailand

Our subsidiary in Thailand, Helloworld Education Online (Thailand) Co., Ltd., was incorporated in 2023. The income is subject to Thailand tax laws. The income tax rate is 20% on taxable profits.

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Hong Kong

Commencing from the year of assessment 2018/2019, the first HK$2 million of profits earned by our subsidiaries incorporated in Hong Kong (being our former wholly owned subsidiary COE HK Co I and our wholly owned subsidiary COE HK Co II and HelloWorld Online HK) have been taxed at half the current tax rate of 16.5% (i.e., 8.25)% while the remaining profits continue to be taxed at the existing 16.5% tax rate. We made provisions for Hong Kong profits tax for the year ended December 31, 2021 as COE HK Co I and COE HK Co II reported taxable profit during such period. For the years ended December 31, 2022 and 2023, there was no taxable profit for COE HK Co II. For the years ended December 31, 2021, 2022 and 2023, there was no taxable profit for HelloWorld Online HK. In addition, payments of dividends by our subsidiaries incorporated in Hong Kong to us are not subject to withholding tax in Hong Kong.

Philippines

Philippines Co II has been registered with the Philippine Economic Zone Authority, or PEZA, as an Ecozone IT Enterprise since December 19, 2014. As such, it is entitled to a special (5%) tax on gross income earned for the next 10 years. Thereafter, it will be subjected to 25% corporate income tax like any other Philippine corporation.

Since Philippines Co I and Philippines Co III are not within any special economic zone territory, these corporations are subject to a corporate income tax of 25% of the taxable net income on all income derived during each taxable year from sources within and outside of the Philippines. In addition to the 25% (if the 20% rate will not apply) corporate income tax, these two companies are also subject to 12% of Value Added Tax on all income generated within the Philippines. Prior to the Ease of Paying Taxes Act (Republic Act No. 11976), which took effect on January 22, 2024, the VAT on services was based on gross receipts. The implementing rules and regulations and related issuances, however, have yet to be released.

We made provisions for income tax expense in Philippines Co III for the years ended December 31, 2021,2022 and 2023, as Philippines Co I and Philippines Co III reported taxable profit during such period.

PRC

Our subsidiary and the former consolidated VIEs in mainland China are companies incorporated under PRC law and, as such, are subject to mainland China enterprise income tax on their taxable income in accordance with the PRC income tax laws. Pursuant to the PRC Enterprise Income Tax Law, which became effective on January 1, 2008, and was amended on February 24, 2017, and December 29, 2018, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards.

We are subject to value-added tax at a rate of 6%, 9% and 13% on the goods/products we provide, less any deductible value-added tax we have already paid or borne. We are also subject to surcharges on value-added tax payments in accordance with PRC law.

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Discontinued Operations

In June 2022, we entered into a definitive share purchase agreement with Dasheng Holding (HK) Limited, an entity controlled by Mr. Jiajia Jack Huang, our chairman of the board of directors and chief executive officer of our company pursuant to which Mr. Jiajia Jack Huang, through Dasheng, acquired all of our online English tutoring businesses in mainland China, including all associated liabilities and assets for US$1. In addition, we were granted a right to purchase the China Mainland Business with an exercise price equal to US$0.001, which expires at the 5th anniversary of June 30, 2022. It’s unlikely that the warrant will become exercisable because such exercise of warrant shall be subject to laws and regulations of competent government authorities, including the Opinions issued by the General Office of the CPC Central Committee and the General Office of the State Council. We refer to this transaction as the divestiture of the China Mainland Business throughout this annual report. At the end of June 2022, the divestiture of the China Mainland Business had been consummated. Upon the consummation of the divestiture of the China Mainland Business, our ownership interest in the China Mainland Business decreased from 100% as of December 31, 2021, to nil. The divestiture of the China Mainland Business represents a strategic shift and has a major effect on our result of operations. Accordingly, assets, liabilities, revenues and expenses and cash flows related to the China Mainland Business have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. The consolidated balance sheets as of December 31, 2022, consolidated financial statements of operations and consolidated financial statements of cash flows for the years ended December 31, 2021 and 2022 have been adjusted to reflect this change. Specifically, net income of US$22.9 million in 2021 and net loss of US$29.7 million in 2022, have been excluded from our financial results from international business and have been separately reclassified to the divested China Mainland Business.

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the years indicated, both in absolute amounts and as percentages of our net revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

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The Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Net Revenues

Our net revenues from our international business operations increased by 80.2% from US$15.0 million in 2022 to US$27.1 million in 2023. The increase was primarily attributable to the increase in the number of paid lessons booked driven by the increase in the number of active students of our international business. The number of active students with general lesson consumption increased by 96.5% from 26.4 thousand in 2022 to 51.9 thousand in 2023. The number of active students is the main driver for our revenue. We track the number of active students as a key indicator for our business growth and manage our course offerings and sales strategies accordingly.

Cost of Revenues

Our cost of revenues from our international business operations increased by 97.9% from US$3.2 million in 2022 to US$6.3 million in 2023. The increase was primarily due to the increase in total service fees paid to tutors, which was mainly resulting from the delivery of an increased number of paid lessons. The total amount of service fees paid to tutors for delivering paid lessons increased by 85.7% from US$2.8 million in 2022 to US$5.2 million in 2023.

Gross Profit

As a result of the foregoing, our gross profit from our international business operations was US$11.9 million in 2022 and US$21.0 million in 2023. Our gross margin decreased from 78.8% in 2022 to 76.7% in 2023. The decrease was mainly due to the increase in tutors-related cost to develop our international business.

Operating Expenses

Our operating expenses from our international business operations increased by 42.3% from US$24.2 million in 2022 to US$34.4 million in 2023. The increase was mainly due to the increases in sales and marketing expenses and product development expenses.

Sales and Marketing Expenses

Our sales and marketing expenses from our international business operations increased by 78.0% from US$13.3 million in 2022 to US$23.6 million in 2023. The increase was primarily due to the increase in headcount and personnel-related expenses and the increase in advertising and promotion fees for our international business.

General and Administrative Expenses

Our general and administrative expenses from our international business operations decreased by 4.2% from US$8.1 million in 2022 to US$7.7 million in 2023. This decrease was primarily due to the reduction in consulting and audit fees.

Product Development Expenses

Our product development expenses from our international business operations increased by 7.8% from US$2.9 million in 2022 to US$3.1 million in 2023. The increase was primarily due to an increase in the number of technology and course development-related personnel in the international business.

Other expenses, net

Our other expenses from our international business operations increased from US$0.5 million in 2022 to US$1.4 million in 2023. The increase was mainly due to the provision for interests and penalties of taxes.

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Income Tax Expenses

We recorded income tax expenses from our international business operations of US$0.1 million in 2022 and US$0.1 million in 2023, respectively.

Net loss from continuing operations

As a result of the foregoing, we incurred net loss from our international business operations of US$12.8 million and US$15.0 million in 2022 and 2023, respectively.

Net loss from discontinued operations

We recorded net loss from the discontinued operations, net of income tax of US$29.7 million and nil in 2022 and 2023, respectively.

Net loss

As a result of the foregoing, we earned net loss, all attributable to our company’s ordinary shareholders of US$42.6 million and US$15.0 million in 2022 and 2023, respectively.

The Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Net Revenues

Our net revenues from continuing operations increased by 1,809.6% from US$0.8 million in 2021 to US$15.0 million in 2022. The increase was primarily attributable to the increase in the number of paid lessons booked driven by the increase in the number of active students of our international business. The number of active students with general lesson consumption increased by 595.0% from 3.8 thousand in 2021 to 26.4 thousand in 2022. The number of active students is the main driver for our revenue. We track the number of active students as a key indicator for our business growth and manage our course offerings and sales strategies accordingly. We launched our international business since the second half of 2021, so such growth of our net revenues was also mainly derived from the growth of our international business since the second half of 2021.

Cost of Revenues

Our cost of revenues from continuing operations increased by 2,356.9% from US$0.1 million in 2021 to US$3.2 million in 2022. The increase was primarily due to the increase in total service fees paid to tutors, which was mainly resulting from the delivery of an increased number of paid lessons. The total amount of service fees paid to tutors for delivering paid lessons increased by 2,150% from US$0.1 million in 2021 to US$2.8 million in 2022.

Gross Profit

As a result of the foregoing, our gross profit from continuing operations was US$0.7 million in 2021 and US$11.9 million in 2022. Our gross margin decreased from 83.5% in 2021 to 78.8% in 2022. The decrease was mainly due to the increase in tutors-related cost to develop international business.

Operating Expenses

Our operating expenses from continuing operations increased by 361.2% from US$5.3 million in 2021 to US$24.2 million in 2022. The increase was mainly due to the increases in sales and marketing expenses, general and administrative expenses, and product development expenses.

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Sales and Marketing Expenses

Our sales and marketing expenses from continuing operations increased by 287.1% from US$3.4 million in 2021 to US$13.3 million in 2022. The increase was primarily due to the increase in headcount and personnel-related expenses and the increase in advertising and promotion fees for our international business.

General and Administrative Expenses

Our general and administrative expenses from continuing operations increased by 378.8% from US$1.7 million in 2021 to US$8.1 million in 2022. This increase was primarily due to the increase in headcount and personnel-related expenses and the service fees related to the divestiture of the China Mainland Business.

Product Development Expenses.

Our product development expenses from continuing operations increased by 2,022.2% from US$0.1 million in 2021 to US$2.9 million in 2022. The increase was primarily due to an increase in the number of technology and course development-related personnel in the international business.

Other income/(expenses)

We had other income from continuing operations of US$0.2 million in 2021, compared with other expenses of US$0.5 million in 2022. The decrease was mainly due to the changes of foreign exchange gain and loss.

Income Tax Expenses

We recorded income tax expenses from continuing operations of US$0.1 million and US$0.1 million in 2021 and 2022, respectively.

Net loss from continuing operations

As a result of the foregoing, we incurred net loss from our continuing operations of US$4.2 million and US$12.8 million in 2021 and 2022, respectively. Net loss from continuing operations were US$4.6 million, US$2.8 million and US$2.0 million for the second quarter, the third quarter and the fourth quarter of 2022, respectively, which indicated the trend of quarterly narrowing losses of our continuing operations in 2022.

Net income/(loss) from discontinued operations

We recorded net income from discontinued operations, net of income tax of US$22.9 million and net loss from discontinued operations, net of income tax of US$29.7 million in 2021 and 2022, respectively.

Net (loss)/income

As a result of the foregoing, we earned net income, all attributable to our company’s ordinary shareholders of US$18.7 million and net loss of all attributable to our company’s ordinary shareholders US$42.6 million in 2021 and 2022, respectively.

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Impact of Foreign Currency Fluctuation

See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Fluctuations in foreign currency exchange rates may materially and adversely affect our results of operations” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Risk.”

Impact of Governmental Policies

See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations” and “Item 4. Information on the Company—B. Business Overview—Government Regulations.”

Cash Flows and Working Capital

51Talk Online Education Group is a holding company with no operations of its own. 51Talk Online Education Group may, through capital contributions or loans, provide funding to its wholly owned subsidiaries in Hong Kong or subject to the satisfaction of applicable government registration and approval requirements, to its wholly owned mainland China subsidiaries. In addition, offshore subsidiaries of 51Talk Online Education Group pay service fees to certain mainland China subsidiary of 51Talk Online Education Group pursuant to operating management service agreements, marketing service agreements and research and development service agreements. Prior to the termination of the variable interest entity structure, 51Talk Online Education Group and its offshore subsidiaries may provide funding to the former mainland China consolidated VIEs through loans, and the former mainland China consolidated VIEs may transfer cash to our mainland China subsidiaries by paying service fees under the relevant contractual arrangements. To effectively manage cash flow within our organization, we have put in place relevant cash management policies. For a more detailed description of cash flows within our organization and our cash management policies, see “Item 3. Key Information—Cash Flows through Our Organization.”

Our ability to distribute earnings to U.S. investors is limited. We are a Cayman Islands holding company, and we may rely on dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. When any of our subsidiaries incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Our subsidiaries’ ability to distribute dividends is based upon their distributable earnings. As of the date of this annual report, we only derive revenues from business operations conducted through our offshore subsidiaries. As we primarily derive our revenue from our operations in countries and regions outside mainland China, we are more likely to rely on dividend payments or other distributions from our offshore subsidiaries, if our offshore subsidiaries decide to do so. Additionally, under our current corporate structure, our mainland China subsidiaries may also distribute dividends or make other distributions on equity to us, subject to satisfaction of applicable government filing and approval requirements. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—Our mainland China subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.”

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In addition, under laws and regulations of mainland China, our mainland China subsidiaries are subject to restrictions on foreign exchange and cross-border cash transfers, including to our holding company 51Talk Online Education Group and to U.S. investors. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulations relating to foreign exchange registration of international investment by mainland China residents may subject our mainland China resident beneficial owners or our mainland China subsidiaries to liability or penalties, limit our ability to inject capital into these subsidiaries, limit mainland China subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.” To the extent cash or other assets in the business is in mainland China or a mainland China entity, the funds or other assets may not be available to fund operations or for other use outside of mainland China due to the imposition of restrictions and limitations by the PRC government on the ability of 51Talk Online Education Group or its subsidiaries to transfer cash or other assets. As of the date of this annual report, there is no equivalent or similar restriction or limitation in Hong Kong on cash or other assets transfers in, or out of, our Hong Kong entities, except for the transfer of funds involving money laundering and criminal activities. However, if restrictions or limitations were to become applicable to cash or other asset transfers in and out of Hong Kong entities in the future, the funds or other assets in our Hong Kong entities may not be available to fund operations or for other use outside of Hong Kong. There is no assurance that the ability of us, our subsidiaries and the former mainland China consolidated VIEs to transfer cash will not subject to further limitations or restrictions imposed by the PRC government. Neither our subsidiaries nor the former mainland China consolidated VIEs made cash dividends or other distributions to 51Talk Online Education Group, the holding company, or its offshore subsidiaries, in the years ended December 31, 2021, 2022 and 2023. Going forward, our subsidiaries intend to retain most, if not all, of their available funds and any future earnings.

Our principal sources of liquidity have been proceeds from our initial public offering and the concurrent private placements and cash generated from operating activities. In June 2020, we completed a registered follow-on public offering, where we issued and sold 81,785 ADSs (including 6,785 ADSs sold from the exercise of over-allotment option) at a public offering price of US$76.00 per ADS. We received aggregate gross proceeds from the follow-on public offering of approximately US$6.2 million. As of December 31, 2023, we had US$23.4 million in cash, cash equivalents, and time deposits. Cash equivalents consist of cash held in accounts managed by certain third party online payment channels in connection with the collection of fees online.

As of December 31, 2023, we and our subsidiaries held cash, cash equivalents and time deposits in the amount of US$8.5 million, SGD3.5 million, MYR5.7 million, HKD15.0 million, RMB58.7 million and THB16.1 million in bank accounts in mainland China, the United States, Singapore, Malaysia, Hong Kong and Thailand, and our consolidated entities in mainland China held cash, cash equivalents in the amount of US$1.2 million in mainland China, which included cash reserved to settle payables to our mainland China subsidiaries.

We believe our cash and cash equivalents on hand will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand, we may seek to issue equity or equity linked securities or obtain debt financing. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

Our consolidated financial statements for 2023 had been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations. We incurred net losses of US$4.2 million, US$12.8 million and US$15.0 million from international business operations for the fiscal years ended December 31, 2021, 2022 and 2023, respectively. Accumulated deficits were US$346.4 million as of December 31, 2023. The net current assets of continuing operations were US$6.1 million and negative US$9.3 million as of December 31, 2022 and 2023, respectively. The operating cash outflows from continuing operations were US$5.0 million for the year ended December 31, 2021, and the operating cash inflows from continuing operations were US$1.9 million and US$0.6 million for the years ended December 31, 2022 and 2023, respectively. We assess our liquidity by our ability to generate cash from operating activities to fund our operations, attract investors and borrow funds on favorable economic terms.

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Operating Activities

Net cash provided by operating activities from our international business operations in 2022 and 2023 was US$1.9 million and US$0.6 million, respectively. The year over year decrease from 2022 to 2023 was primarily due to the increase in our cash paid as prepaid expenses and other current assets.

Net cash provided by operating activities from international business operations in 2022 was US$1.9 million. In 2021, net cash used in operating activities from continuing operations was US$5.0 million. The year over year increase was primarily due to the increase in our cash received as advances from students. The increase in advances from students was US$9.4 million and increase in accrued expenses and other current liabilities is US$6.8 million from 2021 to 2022.

Investing Activities

Net cash provided by investing activities from our international business operations amounted to US$2.4 million in 2023, which was primarily attributable to withdrawal of time deposits.

Net cash used in investing activities from international business operations amounted to US$7.6 million in 2022, which was primarily attributable to the repayment of investment to discontinued operations and partially offset by withdrawal of time deposits.

Net cash provided by investing activities from international business operations amounted to US$5.6 million in 2021, which was primarily attributable to in the withdrawal of time deposits and partially offset by placement of time deposits.

Financing Activities

Net cash used in financing activities from international business operations in 2023 and 2022 amounted to nil.

Net cash provided by financing activities from international business operations in 2021 amounted to US$23.6 million, which was mainly due to funding provided by the China Mainland Business.

Capital Expenditures

Our capital expenditures are incurred primarily in connection with leasehold improvements and investments in office furniture, computers and servers. Our capital expenditures from our international business were US$0.1 million, US$0.01 million and US$0.3 million in the years ended December 31, 2021, 2022 and 2023, respectively. We intend to continue to utilize real estate leasing in order to allocate our capital resources cost-efficiently. We may make acquisitions of businesses and properties that complement our operations when suitable opportunities arise.

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Material Cash Requirements

Other than the ordinary cash requirements for our operations, our material cash requirements as of December 31, 2023, and any subsequent interim period primarily include our operating lease obligations and purchase commitments.

The following table sets forth our contractual obligations as of December 31, 2023:

Notes:

We intend to fund our existing and future material cash requirements primarily with anticipated cash flows from operations, our existing cash balance and other financing alternatives. We will continue to make cash commitments, including capital expenditures, to support our business.

Technology

Network infrastructure

Building a reliable, scalable and secure technology infrastructure is crucial to our ability to support our lessons and the various services that we provide to our students on our online platforms. We manage our lesson delivery system mainly using our proprietary technology, and to a lesser extent, commercially available technology. We have built a robust technology infrastructure to optimize the performance of our Air Class platform.

The telecommunication infrastructure in the Philippines, Malaysia and certain other countries and regions where we conduct our business is less developed. We have designed our infrastructure based on our insights into the local environment to ensure an optimal streaming experience for our tutors and our students. We work with leading network providers in the Philippines and have employed an exclusive network infrastructure to support our online performance by increasing stability and reliability since April 2017. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Unexpected network interruptions, security breaches or computer virus attacks and system failures could have a material adverse effect on our business, financial condition and results of operations.”

All of our servers and routers, including backup servers, are currently hosted by third-party service providers in Singapore. We back up our databases daily. Our IT department regularly monitors the performance of our websites, mobile apps and technology infrastructure to enable us to respond quickly to potential problems. We have not experienced any major problems in our network infrastructure.

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Proprietary CRM and ERP systems

We developed our proprietary ERP system to manage and integrate our key administrative and operational functions, especially those related to our tutors. Each step of our tutors’ interaction with our platform, from initial engagement, to interviews, orientation, teacher training, evaluation and promotion, is s